OPEC, Non-OPEC Extend Output Cuts for 9 Months

OPEC and non-members led by Russia decided on Thursday to extend cuts in oil output by nine months to March 2018 as they battle a global glut of crude after seeing prices halve and revenues drop sharply in the past three years.

Oil prices dropped more than 4% as the market had been hoping oil producers could reach a last-minute deal to deepen the cuts or extend them further, until mid-2018, CNBC reported.

OPEC's cuts have helped to push oil back above $50 a barrel this year, giving a fiscal boost to producers, many of which rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets.

Brent crude settled down $2.50, or 4.6% at $51.46 a barrel. US West Texas intermediate crude futures ended at $2.46 lower, or 4.8%, at $48.90 a barrel.

Oil's earlier price decline, which started in 2014, forced Russia and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria.

The price rise this year has spurred growth in the US shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global crude stocks still near record highs.

"We considered various scenarios, from six to nine to 12 months, and we even considered options for a higher cut. But all indications showed that a nine-month extension is the optimum," Saudi Energy Minister Khalid al-Falih said.

He told a news conference he was not worried by what he called Thursday's "technical" oil price drop and was confident prices would recover as global inventories shrink, including because of declining Saudi exports to the United States.

In December, the Organization of Petroleum Exporting Countries agreed its first production curbs in a decade and the first joint cuts with 11 non-OPEC producer nations, led by Russia, in 15 years. The two sides decided to remove about 1.8 million barrels per day from the market in the first half of 2017—equal to 2% of global production, taking October 2016 as the baseline month for reductions.

On Thursday, OPEC and non-OPEC agreed to extend cuts by the same 1.8 million bpd. The exact split between OPEC and non-members will likely be different after Equatorial Guinea joined the organization on Thursday, reducing the number of participating non-OPEC nations to 10.