Crude Prices Increase After OPEC Extends Output Curbs

Oil prices rose on Friday, following an agreement by OPEC and other major producers to extend output curbs until the end of 2018 to try to reduce the global oil glut.

Brent traded at $63.22 a barrel, up 59 cents on the day. US light crude was up 46 cents at $57.86, Reuters reported.

The Organization of Petroleum Exporting Countries and some non-OPEC producers led by Russia agreed on Thursday to keep current limits on output in place until the end of next year, although they signaled a possible early exit from the deal should the market overheat and prices rise too far.

OPEC’s decision to extend output curbs had largely been priced in by the market, analysts said.

Traders had pushed up prices over the course of November in anticipation of the decision, raising Brent by about 3.6% and US light crude by about 5.6%.

OPEC is showing “a strong commitment to normalizing inventories and also to remain data dependent, which reduces the risk of both unexpected supply surprises and excess stock draws”, Goldman Sachs said in a note.

The deal, which has been in place since January and was due to expire in March, has seen producers reduce output by 1.8 million barrels per day, helping to halve global oil oversupply over the past year.

It has allowed prices to return above $60 per barrel, recovering from lows of $27 per barrel hit in January 2016.

Libya and Nigeria, previously exempt from cutting production due to internal strife, agreed to a collective cap on their output that exceeds the nations’ current production, according to Iranian Oil Minister Bijan Namdar Zanganeh.

To accommodate the two new entrants, the existing deal will be reset to run for 12 months from January to December, delegates said.

"The most positive surprise is the inclusion of Libya and Nigeria in the deal and it removes uncertainty about supply in 2018," said Jan Edelmann, an analyst at HSH Nordbank in Hamburg.

However, Russia expressed concerns the agreement could push prices up too far and called for clarity on an exit strategy.

Saudi Oil Minister Khalid al-Falih said it was premature to talk about exiting the cuts for at least a couple of quarters, as the world was entering a season of low winter demand, he said OPEC would examine progress at its next regular meeting in June.

Vagit Alekperov, the CEO of Russia’s top private producer Lukoil, told Reuters that should the oil market overheat, both OPEC and its allies will release new production to rebalance it.

Moscow was particularly concerned that output curbs and any subsequent price rises could simply fuel more drilling in the United States, which is not a party to the agreement.

US production has been a thorn in OPEC’s side, with rapidly increasing shale oil drilling undermining the impact of the group’s output curbs.

US oil production hit a new record of 9.68 million bpd last week, according to government data released this week.