Oil prices went nowhere in the wake of news that OPEC and some non-member producers such as Russia had agreed to extend their production cap to the end of 2018.
While the extension was expected the new twist is an escape valve that could see the agreement dropped if oil prices overheat.
A draft of the post meeting statement from OPEC said the agreement’s duration could be reviewed in June based on fundamentals (ie prices).
The next meeting is scheduled for June 21, 2018.
That meets Russia’s needs which pushed for a clear message on how to exit the cuts so the market doesn’t flip into a deficit too soon, prices don’t rally too fast and rival US shale firms don’t boost output further.
With Brent crude above $US63 a barrel overnight, Russia has expressed concerns that an extension for the whole of 2018 could see a rise in US crude production.
US January West Texas Intermediate crude futures added a cent to $US57.31 a barrel in late trading. Prices for the contract were up nearly 5% for the month, the third-consecutive monthly rise in a row.
In Europe January Brent the front-month contract which expires at the session’s settlement, was up 53 cents, or 0.8%, to $US63.64 a barrel.
For the month, the contract was up around 4.4% higher. February Brent which will become the front-month contract, added 9 cents, or 0.1%, to $US62.62 a barrel.
The news will be welcomed by Australian energy groups such as Woodside, Origin, Santos, Beach and BHP Billiton.
The International Energy Agency has already warned that rising oil prices will bring higher production, especially in the US which could threaten to send prices lower.
US government data (from the Energy Information Agency) on Thursday showed that US crude oil production rose 3% in September to 9.48 million barrels per day. That’s still below the all time peak of 9.626 million barrels a day in April 2015.
Saudi Arabia needs oil prices to remain high through 2018 to help support the stock market listing for national energy giant Aramco.
Kuwaiti Oil Minister Essam al-Marzouq told the media in Vienna after the meeting that OPEC and non-OPEC allies had agreed to extend the cuts by nine months until the end of 2018, and it had also decided to cap the combined output of Nigeria and Libya at 2017 levels below 2.8 million barrels er day.
Both countries have been exempt from cuts due to unrest and lower-than-normal production.
