Finance

OPEC cuts extension 'necessary' but may not be enough, claims Kemp

OPEC cuts extension 'necessary' but may not be enough, claims Kemp

OPEC and other key producers agreed to extend the ongoing supply cuts of 1.8 million barrels a day to March next year.

On Thursday, the cartel and other major oil-producing countries extended a production cut that has done little to bolster crude prices.

With the deal due to expire at the end of June, one participant said the group had opted for a nine-month extension.

The OPEC and non-OPEC meeting in Vienna agreed to extend the existing level of oil production at 1.8 million barrels per day.

Michael Wittner, the global head of oil research for Societe Generale, said in a report emailed before the OPEC announcement that bullish market conditions were supported by a steady draw on commercial crude oil inventories in the United States, the world's leading economy.

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

"They will also be looking at shale oil production and what the US Government does about selling of its strategic petroleum reserves".

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OPEC was under pressure from oil producers to reduce crude oil stockpiles from their current level at 3bn barrels to their long-term average of 2.7bn barrels.

QUOTEWORTHY: "The extent of oil's selloff demonstrates that, even with the extended production cuts now agreed, the US oil price may struggle to get past the early to mid-$50's range for some time yet", said Ric Spooner, chief analyst at CMC Markets.

Despite oil's negative reaction to the OPEC production cut extension, prices should grind higher into the $60s by the fourth quarter, RBC's Helima Croft told CNBC on Thursday. That already puts American producers in the league with oil giants Saudi Arabia and Russian Federation and cuts further into OPEC's past ability to play a role in setting prices and supplies.

"If U.S. shale producers exceeded our projected increases, it'll drive the price down again", Arrington said.

Commerzbank cited data from the US Department of Energy saying US production was roughly 540,000 barrels per day higher in mid-May than at the start of the year.

With U.S. output rising steadily and fears that OPEC and its allies could raise production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.


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