OPEC expands oil production cuts to support prices as global economy slows
The Organization of the Petroleum Exporting Countries (OPEC) agreed on Monday to extend oil supply cuts until March 2020 as members overcome their differences to support crude prices as the global economy slows and US production rises.
The move is likely to anger US President Donald Trump, who has asked Saudi Arabia, OPEC's biggest producer, to increase oil supplies and help cut fuel prices if Riyadh wants US military support in its confrontation with its arch-foe Iran.
Brent crude has risen more than 25 percent since the start of the year, after the White House tightened sanctions on Venezuela and Iran, members of OPEC, which led to a drop in oil exports.
OPEC and its Russian-led allies have been cutting oil production since 2017 to prevent falling prices, amid rising production from the United States, which overtook Russia and Saudi Arabia to become the world's largest producer.
Concerns about a drop in global demand as a result of the trade row between the United States and China have heightened the challenges faced by OPEC from 14 countries.
"Saudi Arabia is doing its best to reach oil prices to $ 70 a barrel, despite what Trump wants, but they have not been able to do so despite the drop in Iranian and Venezuelan oil exports," said Gary Ross of Black Gold Investors.
The United States, also the world's largest oil consumer, is not a member of OPEC and does not participate in the cut-off agreement. A jump in oil prices could lead to higher gasoline costs, an important issue for Tramb, who is seeking re-election next year.
The OPEC meeting will be followed by talks with Russia and other allies, the so-called OPEC + alliance, on Tuesday.
Russian President Vladimir Putin said on Saturday he had agreed with Saudi Arabia to extend current production cuts of 1.2 million barrels per day, equivalent to 1.2 percent of global demand, until December 2019 or March 2020.
A Reuters poll of analysts suggested that oil prices may falter as the global economic slowdown presses demand while US oil drowns the market.
Saudi Energy Minister Khalid al-Faleh said he was increasingly optimistic about the global economy after the world leaders meeting at the G20 summit in recent days.
"The world economy in the second half of the year looks much better today than it did a week ago because of the agreement reached by President Trump and Chinese President Xi (Jin) and the truce they reached in their trade and the resumption of serious trade negotiations," he said.
He said Saudi Arabia would continue to cut supplies to customers in July. He said he believed US oil production would peak and then stabilize, just like the North Sea ore and others.
"The reason for the extension of the agreement is nine months rather than six months to reassure markets that the agreement will remain in place during the seasonal weakness of demand in the first quarter of 2020," said Amrita Sen, co-founder of Energy Aspects.
The OPEC meeting on Monday lasted six hours, with ministers discussing a long-term cooperation pact with non-OPEC producers.
Opec sources said Iran and Saudi Arabia had argued over the content of the draft, but they finally agreed on the details despite Tehran's criticism of Putin's actual announcement of the deal before the OPEC meeting. The organization also confirmed that its Secretary-General, Mohammed Barkindo, would serve for a new three-year term.
Iran's exports fell to 0.3 million bpd in June from around 2.5 million bpd in April 2018 due to new sanctions imposed by Washington.
The sanctions put Iran under unprecedented pressure. Even in 2012 when the EU joined Washington in imposing sanctions on Tehran, the country's exports remained at around one million barrels a day. Oil accounts for most of Iran's budget revenues.
Washington says it wants to change what it calls a "corrupt" regime in Tehran. Iran has condemned the sanctions as illegitimate and says the White House is run by "mentally retarded" people.
"The growing tensions between the United States and Iran are raising the possibility of oil price volatility that could be difficult for OPEC members to manage," said Anne Louise Hettel, vice president at Wood Mackenzie.
OPEC is due to hold its next meeting on December 5.