Abu Dhabi: Opec on Monday agreed a nine month extension of production cuts until the end of March 2020 to balance oil markets and shore up prices.
The decision to extend the deal was taken at a meeting of 14-member group in Vienna with Iran, the arch-rival of defacto Opec leader Saudi Arabia, backing the extension.
Saudi Arabia’s oil minister Khalid Al Falih as well as Venezuelan oil minister Manuel Salvador Quevedo Fernandez, who is also the president of Opec conference, confirmed the extension of the deal during a press conference in Vienna that was shown live on the Opec website.
“We are committed to a nine-month extension in unequivocal, very solid and very strong way. Conformity levels for the second half is going to be better and different,” said Al Falih after the end of marathon talks at the Opec secretariat in Vienna.
He also said the global economy in the second half looks much better due to resumption of trade negotiations between China and the US.
On oil prices not gaining much on the extension of the deal, Al Falih said he doesn’t get excited by daily price fluctuations and various factors impact how markets react.
“Mid to long term is important,” he said.
The conference also approved the draft text of the Charter of Cooperation with non-Opec members and requested Opec countries to take it through their respective national processes.
Opec and its allies are currently cutting production by 1.2 million barrels per day to rebalance oil markets in terms of demand and supply and support oil prices.
Saudi Arabia, UAE and other countries supported the extension of the deal with Al Falih saying on Twitter that Russian President Vladimir Putin and Crown Prince Mohammad Bin Salman agreed to extend the agreement starting from July.
“Once again, the agreement confirms that the Saudi-Russian partnership paves the way for ensuring the interests of producers and consumers and sustaining the growth of the world economy,” said Al Falih ahead of the Opec meeting.
UAE also backed the deal. “I’m for an extension, I think it’s needed for the current conditions of the market,” UAE energy minister Suhail Al Mazrouei told reporters in Vienna. “So I’m expecting a rather easier meeting.”
The development comes amid growing tensions in the Middle East between the US and Iran on one hand, raising concerns on supply of crude oil and dampening demand due to US, China trade tensions as well as rising global oil inventories.
Tensions between the US and Iran have increased in recent times after attacks on oil tankers near Strait of Hormuz, an important shipping route for oil and oil installations in Saudi Arabia. A US surveillance drone was also downed, escalating tensions further.
“Since our last meeting in December 2018, we saw an improvement in market conditions over the first part of the year, particularly when compared to the turbulence and volatility of the fourth quarter of 2018,” said Quevedo Fernandez, Venezuela’s oil minister and President of the Opec Conference, during his opening address.
“However, over the past month or so we have seen a growing list of escalating uncertainties, related to such issues as trade negotiations, monetary policy developments, as well as geopolitical issues.”
“There are clear signs of some economic bearishness, and many institutions are pointing to a more challenging outlook for oil supply and demand fundamentals,” he said.
“We need to remain vigilant, continually monitor the market and be flexible and agile to take the necessary actions – as we have done in the past – that are required to maintain these hard won successes.”
Analysts welcomed the decision on the extension of output cuts amid slowing demand for crude.
“It should come as no real surprise that Opec has agreed to extend oil supply cuts until March 2020 following their meeting today in Vienna, with the slowing demand becoming an ever-increasing factor. Ministers from the 14 nations have agreed to continue this policy as they look to get prices back up to $70 per barrel in the coming months,” said Mihir Kapadia, the CEO of Sun Global Investments.
Opec will meet non-Opec member countries including Russia on Tuesday to ratify the deal.
Oil jumps on extension of cuts
Oil rose as much as 3.1 per cent in New York on Monday on the news of extension but retreated as the trading session continued due to concerns on global growth.
Brent was at $64.77 per barrel at 9:43pm UAE time after trading above $66.01 per barrel during earlier sessions. West Texas Intermediate was up by 0.32 per cent at $58.66 per barrel.
Ole Hansen, head of commodity strategy at Saxo Bank said cut extension is already priced in with focus returning to demand worries following economic data from US and China.
- With inputs from Bloomberg