OPEC and non-OPEC oil producers have agreed to extend output cuts until the end of 2018.
Oil prices have strengthened following yesterday’s meeting in Vienna which saw OPEC and non-OPEC oil producing nations agree to extend output cuts until the end of 2018. The decision to cut production levels was originally agreed to tackle the issue of global oversupply in an attempt to support the market.
Nations involved in the deal have also agreed to an option to exit the deal ahead of schedule if the market surges beyond expectations.
Market analysts claim that the extension was already priced in during November which is why the initial impact is limited, with Brent trading around $63/b yesterday evening.
As it stands, the bullish movement is quite subdued as inventories need to be cut further before any effects of the extension are noticeable. The deal reduces output by 1.8 million barrels a day (bdp) and its progress will be examined in the next OPEC meeting which is scheduled for June.
Kiyoshi Homma, a director of Idemitsu Kosan, a Japanese petroleum company said: "Oil prices are likely to hover around current levels till next June, when stockpiles would be optimized through continued production cuts, but the market will likely tighten after that."
Russia and OPEC nations produce over 40% of the world’s oil supply and this deal represents the first significant cooperation between the two producers; with support from President Vladimir Putin, the deal has almost halved excess oil stocks since January.
Russia, in particular pressed for the option to exit the deal early as it is thought high prices would spark more drilling in the US which is not involved in the deal.
High US production resulted in a sharp drop in prices which began in 2014, with shale oil drilling increasing as prices started to recover, undermining efforts by OPEC.