Wood Mac: Don't expect an OPEC-fueled rally in crude oil prices

Opec has agreed to keep production cuts in place until the first quarter next year following a key meeting of the cartel in Vienna on Thursday, according to a report.

The curbs are working, and prolonging the deal through March will "do the trick", Saudi Oil Minister Khalid Al-Falih said before the ministerial meeting in Vienna Thursday.

Non-Opec oil producers led by Russian Federation agreed yesterday to join Opec (Organisation of Petroleum Exporting Countries) in extending production cuts for nine months until March 2018, delegates said.

Barclays said the ongoing production cut would result in a drawdown of bloated fuel inventories, but added that OPEC's goal of bringing stocks down to their five-year average would not be reached within the timeframe of the production cut.

Equatorial Guinea which first expressed interest in joining OPEC in 2009, was among 10 non-cartel members who last December pledged to reduce oil production by almost 600,000 barrels per day.

Brent crude oil dropped $1.16 a barrel to a low of $52.80 before regaining lost ground to trade at $53.96, unchanged on the day, by 0900 GMT.

There had been some hopes of that a 12-month extension could be agreed or that there would be a deeper cut to output levels.

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Will OPEC look to Nigeria for output cuts?

OPEC's cuts have helped push oil from $26 a barrel in early June 2016 to back above $50 a barrel this year, giving a fiscal boost to producers.

The sharp fall in oil prices in 2014 forced Russian Federation and Saudi Arabia to plan a freeze in output while it led to political unrest countries including Venezuela and Nigeria.

In the longer term, there are concerns among OPEC countries that higher oil prices may end up being counterproductive as they encourage USA shale gas producers to re-enter the market " a development that could weigh on oil prices.

Falih said it was likely the extension would have the same terms as an agreement struck last December that withheld 1.8 million barrels a day of oil from the market.

OPEC sources have said the Vienna meeting would highlight a need for long-term cooperation with non-OPEC producers.

OPEC is painfully aware of its diminishing power to influence the market as shale producers gain more clout. It will take us about six months to get there.

  • Darren Santiago