Oil rose on Thursday after OPEC and non-OPEC producers led by Russia agreed to extend output cuts until the end of 2018, while also signalling a possible early exit from the deal if the market overheats, Reuters reports.
Iran’s energy minister announced Nigeria and Libya would be included in the oil output deal and an OPEC communique stated the countries would not produce above 2017 levels in the new year.
The Oman minister said that Nigeria had agreed to cap output at 1.8 million barrels per day (bpd).
The current deal from the Organization of the Petroleum Exporting Countries and other producers such as Russia cuts 1.8 million bpd from the market in an attempt to tackle global oversupply and bolster prices.
The deal had been set to expire in March, but on Thursday the Saudi Energy Minister Khalid al-Falih told reporters the cuts would continue for an additional nine months.
“OPEC extending the output cut till the end of 2018 was widely anticipated; however, suggestions that both Nigeria and Libya have decided to cap production is a bullish signal,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics.
However, price reactions were mostly muted, with many analysts saying the nine-month extension was already priced in.
“Because they’re going to be meeting again in a few months, we’re just going to be doing this again,” said John Macaluso, an analyst at Tyche Capital Advisors.
Brent crude futures settled up 46 cents or 0.7 percent to $63.57 a barrel. U.S. crude futures settled up 10 cents or 0.2 percent to $57.40 a barrel.
Brent rose 3.5 percent on the month, with U.S. crude rising 5.5 percent.
The most active February Brent contract which expired on Thursday, settled up 10 cents to $62.63.
The Brent/WTI spread WTCLc1-LCOc1 widened by 49 cents.
Saudi oil minister Khalid al-Falih said it was premature to talk about exiting the cuts at least for a couple of quarters as the world was entering a season of low winter demand. He added OPEC would examine progress at its next regular meeting in June.
“It’s not surprising that they gave themselves an out,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, referring to the June meeting and review.
He said the important question is country-level compliance. “I think that’s where market attention will focus, because you’re trying to get a market into balance,” Haworth said.
Market watchers said they would look closely at output from countries like Iran, Libya and Russia.
“It will be hard to keep the Russian oil companies in the fold, if shale producers continue to make increased sales to Asia as well,” said John Kilduff, partner at Again Capital.
Russia’s Energy Minister Alexander Novak said he sees his country’s production flat at 547 million tonnes in 2018 if the output cuts are maintained for the whole year.
One of OPEC’s biggest problems while cutting supplies has been rising U.S. output, which is gaining global market share and undermining the group’s efforts to tighten the market.
U.S. oil production C-OUT-T-EIA hit a new record of 9.68 million bpd last week, according to government data released on Wednesday.
That is up from 8.5 million bpd at the end of last year, before the cuts were implemented.
“If producers in the U.S. increase their rig count over the next few months due to higher prices then I expect another price collapse by the end of 2018,” said Scott Sheffield, executive chairman of Pioneer Natural Resources, one of the largest producers in the Permian, the biggest U.S. oilfield.