The measure has not fully achieved its goal of draining stocks and stimulating prices to rise, with a barrel that has been around $ 50 a barrel in recent months, far from the 100 of barely three years ago

Saudi Minister of Energy and Industry Khalid Al-Falih (d) and Russian Energy Minister Alexander Novak. / Lisi Niesner (Efe)

OPEC countries and their partners, including Russia, agreed on Thursday to extend their oil production cuts by nine months to March 2018, an attempt to stabilize prices in the face of the US boom.

“All indications are that a nine-month extension is optimal,” Saudi Energy and Industry Minister Khalid Al-Falih told a news conference with his Russian counterpart, Alexandre Novak.

Saudi Arabia and Russia – the two main world producers – were the architects of last year’s historic agreement among 24 countries (OPEC and 11 non-members).

The pact came into force in January and was in force until June 30. It was the first major in years of a cartel that seemed to have lost its ability to influence.

But the cuts have not fully achieved their goal of draining inventories and boosting prices upward, with a barrel that has been around $ 50 a barrel in recent months, far from the 100 of barely three years ago.

Hence the extension of other nine months, which will come into force on July 1 with the same conditions of 2016 – a total of 1.8 million barrels per day (mbd) reduction in relation to October of that year – and without adding new Countries in this oil coalition, hitherto unpublished.

“The idea is now to bring inventories to levels similar to the average of the last five years,” Venezuelan Oil Minister Nelson Martínez summed up before the meeting.

The turn of the producers, and in particular those of the Organization of Petroleum Exporting Countries (40% of the world production), that for years flooded the market with its crude, is explained by the increasing competition of the shale oil of the United States.

This type of oil, which is extracted by hydraulic fracturing – fracking, a technique that is highly criticized for its effects on the environment – is booming and thanks to technical advances is increasingly competitive.

To the extent that production in the United States (shale and conventional) has gone from 850,000 barrels per day in 2016 to 9.3 million currently, setting the record for 2015.

Since last year’s deal, the barrel moves between $ 45 and $ 55 in New York, far from the $ 26 floor it touched in February 2016.

Shortly after Thursday’s deal, oil fell about two dollars (to 49.33 a barrel of WTI and 51.97 a barrel of Brent), a sign of market skepticism.

“A nine-month extension is not enough to really stimulate prices and we will continue to see the American shale fill that gap,” predicted Neil Wilson, an analyst at ETX Capital

Deshpande Abhishek, of Natixis, told AFP that the markets “already had an extension of nine months, and as there are no surprises, prices are falling.” Respect for quotas (fulfilled “over 100%” since January, according to an internal OPEC committee) again will be key to achieving the expected effect.


For energy giants like Russia and Saudi Arabia, the square of the circle consists of arriving at a price neither too low, with serious consequences for their economies, nor too high, which prompts the United States to further develop its shale.

The Saudis also had special interest in the deal because they are preparing for the 2018 takeover of Aramco, the national oil company, and the price of the barrel will be key in the valuation of their shares.

Negotiations during the week in offices and hotels in the Austrian capital met with some reluctance, such as those in Iraq, which needs income in its war against jihadism.

For their part, Nigeria and Libya, which also face internal problems, will continue to be exempt from complying with the cuts.

OPEC has also officially announced Equatorial Guinea’s entry into the cartel, which will now have 14 members, and has explained that the African country will also participate in the reduction efforts.


Please enter your comment!
Please enter your name here