OPEC will meet again on Friday (September 22) to discuss an extension to its current deal to cut output and reduce the global supply glut.
Last year, the cartel signed a historic deal to curb oil production for the first time in eight years. OPEC members, together with other top producers such as Russia, agreed to reduce the oversupply in the market by cutting 1.2 million barrels per day of oil production.
In May, they decided to extend the deal until the end of March, largely because their efforts to balance the market have been offset by increasing US shale production. That’s also why another extension will be on the agenda when OPEC meets again this Friday in Vienna.
There is not yet a consensus on how long an extension of the deal should last. “[T]hings are subject to discussion,” one OPEC delegate said. A monitoring procedure for oil exports will also be discussed at the meeting, said Russian Energy Minister Alexander Novak.
Despite concerns about whether the cuts have been working, oil prices have surged more than 15 percent in the past three months. In fact, several ministers from OPEC and non-OPEC countries have said that compliance with the terms of the deal is improving.
Kuwaiti Oil Minister Essam al-Marzouq said on Thursday (September 21) that compliance with output cuts is above 100 percent. “It is very good, better than last month,” the minister told reporters after arriving in Vienna.
Even so, according to the International Energy Agency, if OPEC doesn’t extend supply cuts beyond the end of March, the market will return to oversupply again, which could negatively impact prices.
“Bottom line, the market remains range bound right now as fundamentals become less bearish and the technical outlook continues to improve,” said Tyler Richey, co-editor of the Sevens Report. “But that could change in a hurry if OPEC disappoints (again) or if the U.S. oil production machine roars back to new multi-year highs in the coming weeks.”
On Thursday, November West Texas Intermediate crude lost 0.2 percent to hit $56.19 a barrel on the New York Mercantile Exchange; Brent crude for November delivery on London’s ICE Futures exchange also fell 0.2 percent to reach $56.19 a barrel.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.