Opec and oil producing allies extend production cuts for nine months

Opec agreed in November to cut output by about 1.2 million barrels a day

The Saudi oil minister said that the cuts were working (Getty/iStock)

Opec and its allies extended oil production cuts for nine more months after last year’s landmark agreement failed to eliminate the global oversupply or achieve a sustained price recovery.

The producer group together with Russia and other non-members agreed to prolong their accord through March, two delegates familiar with the decision said after a meeting in Vienna, asking not to be identified before an official announcement is made.

Six months after forming an unprecedented coalition of 24 nations and delivering output reductions that exceeded expectations, some of the world’s largest oil producers have faced the fact that they’ve fallen short of their goal. While stockpiles are shrinking, ministers acknowledged that the surplus built up during three years of overproduction won’t clear until at least the end of 2017.

Saudi oil minister Khalid Al-Falih said on Thursday that the cuts were working, saying stockpile reductions would accelerate in the third quarter and inventory levels would come down to the five-year average in the first quarter of next year. While he expected a “healthy return” for US shale, that wouldn’t derail Opec’s goals and a nine-month extension will “do the trick”, he said.

The Organisation of Petroleum Exporting Countries agreed in November to cut output by about 1.2 million barrels a day. Eleven non-members joined the deal in December, bringing the total supply reduction to about 1.8 million. The curbs were intended to last six months from January, but confidence in the deal, which boosted prices as much as 20 per cent, waned as inventories remained stubbornly high and US output surged.

Opec agreed earlier on Thursday to prolong their own output cuts by nine months. Nigeria and Libya will remain exempt from making cuts and Iran, which was allowed to increase production under the original accord, retains the same output target, Kuwait’s oil minister Issam Almarzooq said after the meeting.

Bloomberg