OPEC and Russia officials agreed on Thursday to extend oil production cuts through the end of 2018, signaling continued cooperation to boost crude prices in the face of competition from U.S. shale.
OPEC, Russia and other major oil producing countries agreed to a continued output cut of 1.8 million barrels a day through the end of next year. The OPEC-Russia agreement also no longer exempts Nigeria and Libya from cutting their crude output.
“We are united, shoulder to shoulder,” Saudi Arabian Energy Minister Khalid Al-Falih said while seated next to his Russian Energy Minister Alexander Novak. “We are completely aligned.”
The decision shows the extent to which Moscow and Riyadh see U.S. oil production as a threat.
U.S. production is expected to hit record levels in 2018, breaking the annual average daily production record of 9.6 million million barrels per day set in 1970. The U.S. is the world’s third-largest oil producer, but it’s gaining quickly on Saudi Arabia and Russia, the first and second largest producers, respectively.
Russia and OPEC members agreed to cut production about a year ago to buoy oil prices, which had cratered in the summer of 2014. Prices were kept low because of a Saudi Arabian decision to not cut production to price-out other countries, including U.S. shale.
U.S. oil production took a slight hit, but companies continued to get more efficient. Meanwhile, finances of OPEC members and Russia took major hits, losing billions of dollars in exports revenues.
Oil prices have risen about $20 per barrel since production cuts were implemented, Bloomberg reported. Higher oil prices have allowed petro states to stabilize their finances.
But on the flip side, higher prices may allow more shale output to come online.
The U.S. Energy Information Administration already predicted oil prices to increase, boosting production to record levels. Most of the increase would come from fracking into the Permian basin in Texas and from offshore rigs in the Gulf of Mexico.
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