LONDON – Oil prices fell on Thursday as OPEC prepared to extend limits to production by nine months to March 2018 in an attempt to drain a glut that has depressed markets for almost three years.
The cuts are likely to be shared again by a dozen oil exporters outside OPEC led by top producer Russia, which reduced output in tandem with the Organization of the Petroleum Exporting Countries from January.
OPEC’s cuts have helped to push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets.
Brent crude oil LCOc1 dropped as much as $1.24 a barrel to a low of $52.72 on Thursday before regaining ground to trade 20 cents lower at $53.76 by 1350 GMT (9:50 a.m. ET). U.S. light crude CLc1 was 20 cents lower at $51.16.
Both benchmarks were still up over 15 percent from May lows.
OPEC and other producers had been widely expected to agree to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.
OPEC’s current deal, agreed at the end of last year, only covers the first half of 2017.
Saudi Arabia’s energy minister, Khalid al-Falih, said ministers did not see a need to reduce oil output further:
“There have been suggestions (of deeper cuts), many member countries have indicated flexibility but … that won’t be necessary,” Falih said.
That disappointed some investors.
“A nine-month extension of the output cuts is already baked into prices,” said Olivier Jakob, energy markets analyst at Swiss consultancy Petromatrix. “This shows there’s not much more OPEC can do.”
“It is a disappointment that OPEC hasn’t done more to balance the markets,” he added.
Amrita Sen, analyst at consultancy Energy Aspects agreed.
“Nine months was priced in,” Sen said.
Energy consultancy Wood Mackenzie said keeping existing oil output at current levels for another nine months would result in a 950,000 bpd production increase in the United States, thus undermining OPEC’s efforts to balance supply and demand.
U.S. oil production C-OUT-T-EIA has already risen by more than 10 percent since mid-2016 to more than 9.3 million bpd as drillers take advantage of higher prices and the supply gap left by OPEC and its allies.
(Additional reporting by Henning Gloystein in Singapore; editing by Jason Neely, Edmund Blair and Pritha Sarkar)
OPEC oil ministers were continuing their discussions in Vienna after three hours of talks. Non-OPEC producers were scheduled to meet OPEC later in the day.
In December, OPEC agreed its first production cuts in a decade and the first joint cuts with non-OPEC, led by Russia, in 15 years. The two sides decided to remove about 1.8 million barrels per day from the market in the first half of 2017, equal to 2 percent of global production.
Despite the output cut, OPEC kept exports fairly stable in the first half of 2017 as its members sold oil from stocks.
The move kept global oil stockpiles near record highs, forcing OPEC first to suggest extending cuts by six months, but later proposing to prolong them by nine months and Russia offering an unusually long duration of 12 months.
“There have been suggestions (of deeper cuts), many member countries have indicated flexibility but … that won’t be necessary,” Saudi Energy Minister Khalid al-Falih said before the meeting.
He added that OPEC members Nigeria and Libya would still be excluded from cuts as their output remained curbed by unrest.
Falih also said Saudi oil exports were set to decline steeply from June, thus helping to speed up market rebalancing.
OPEC sources have said the Thursday meeting will highlight a need for long-term cooperation with non-OPEC producers.
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