OPEC extended Thursday dramatic cuts in crude production over the next nine months to prevent further hemorrhaging of the world’s oil prices.
The Organization of the Petroleum Exporting Countries (OPEC)’s decision to extend the cuts from January comes as the world market saw oil increase to $50 a barrel in 2017, which gave fossil fuel producers a reprieve from a nearly four year oil glut.
OPEC agreed with non-OPEC nations and Russia in December to remove about 1.8 million barrels per day from the market in the first half of 2017, or 2 percent of global production.
Still, analysts were disappointed the group did not seek steeper cuts and a longer extension. Brent crude had fallen 1.3 percent to around $53 per barrel following OPEC’s decision.
“There have been suggestions (of deeper cuts), many member countries have indicated flexibility but … that won’t be necessary,” Saudi Energy Minister Khalid al-Falih said before a meeting announcing the decision.
Crude prices increased incrementally during the past three months, moving up around $47 dollars a barrel as of March, which is far less than the $108 a barrel oil was selling for in June 2014.
Analysts argue oil prices will only rise if every OPEC’s nation follows the policy to reduce oil production, but countries such as Venezuela ignored their pledges. This means that although much of OPEC claims it is cutting production, its member countries are exceeding their quotas.
OPEC members Nigeria and Libya, meanwhile, would be excluded from cuts because turmoil and violence disrupted their oil output, Falih said. Other countries in the groups have their own reasons for curtailing oil exports and reducing prices.
“Russia has an upcoming election and Saudis have the Aramco share listing next year so they will indeed do whatever it takes to support oil prices,” Gary Ross, head of oil company PIRA Energy, told reporters about the underlying reasons for OPEC’s move.
The group has been unwilling to ease up on production, in part, because it sought to undercut the price advantage of natural gas production.
OPEC countries, among other nations, require the price of oil to be above $80 a barrel to keep the spigots on and budgets fat. The fracking industry, on the other hand, can be profitable at around $40 a barrel.
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