A new accord by the Organization of the Petroleum Exporting Countries (Opec) to extend its curb on output has not yet had its desired effect of driving up prices but the effect of earlier cuts may be paying off for the cartel, an Irish energy has said.
Opec and allies extended oil production cuts for nine more months after last year’s landmark agreement failed to eliminate the global oversupply or achieve a sustained price recovery. The producer group, together with Russia and other non-members, agreed to prolong their accord through March, two delegates at the meeting in Vienna said.
Six months after forming an unprecedented coalition of 24 nations and delivering output reductions that exceeded expectations, some of the world’s largest oil producers have faced the fact that they have fallen short of their goal. While stockpiles are shrinking, ministers acknowledged that the surplus built up during three years of overproduction will not clear until at least the end of 2017.
Darragh Crowley, energy trader at Bord Gáis Energy, said that though Opec has struggled to reduce the oil glut because the US shale oil industry has pumped new supplies, the revenues of Opec nations have improved “and money talks”.
“The International Energy Agency has calculated that the cartel earned almost $75m extra per day in the first quarter of this year compared with the last quarter of 2016. Nigeria and Libya remain exempt and Iran, which was allowed to increase production under last year’s agreement, has retained the same output target,” Mr Crowley said.
“The [latest] deal was largely expected and there had even been rumours in the market that the output would be curtailed even further, so there hasn’t been a big price move today.”
Prices for the international benchmark Brent crude dipped to $46 in early May as doubts surfaced over whether the cuts would be extended, but they have since recovered to over $53 per barrel as it became increasingly likely that an extension was a done deal.
Brent crude oil dropped as much as $1.24 a barrel before regaining ground to trade 20 cents lower at $53.76. US light crude was 20 cents lower at $51.16 at one stage.
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