Oil producers within and outside OPEC headed today towards an agreement maintaining cuts in output into next year after a joint committee recommended a nine-month extension. Late last year 24 countries, including those in the Organization of the Petroleum Exporting Countries, agreed to cut production by 1.2 million barrels per day. The aim was to reduce a global supply glut that had seen the oil price plunge from more than USD 100 per barrel in 2014 to almost USD 25 in early 2016. The agreement, which marked a major policy turnaround for OPEC, helped push prices to their current level of between USD 50-55 per barrel, but was due to expire on June 30.
Today a joint committee of producers “decided to recommend that the production adjustments of the participating countries be extended for nine months,” OPEC said. A statement said that the committee, while praising how producers had adhered to the deal so far, also “recommend further adjustment actions, if deemed necessary”. The producers were expected to agree to the recommendation at a meeting at OPEC headquarters in Vienna on Thursday.
Whether this will succeed in lifting oil prices by much remains to be seen, however, particularly because of competition from the United States. When the price was at rock-bottom, scores of US shale oil producers went bust. But the recovery has brought many back to life, and US output is nearing record levels. Commerzbank analysts predicted Wednesday compliance to the producers’ deal will “falter” in the second half of the year and for the price to dip below USD 50 per barrel.