VIENNA – An alliance of many of the world’s biggest oil-producing nations extended their agreement to cut output for an additional nine months, an effort to support prices that seems futile in the face of growing production from the U.S.
Thursday’s decision by the 14-member OPEC cartel and 10 other countries led by Russia, means that the reductions of 1.8 million barrels a day agreed on in November will stay in place until March.
Saudi Oil Minister Khalid A. Al-Falih, who presided over the meeting, said he expected that the extension should reduce high crude inventories to a level corresponding to “the five-year average by the end of the year.”
Less oil on the market normally means higher value per barrel. But any uptick in prices may be modest and temporary.
The OPEC-non-OPEC alliance faces competition from U.S. shale producers. Many have returned to the market since crude prices have risen from last year’s lows to over $50 a barrel, and more are set to resume operations if crude prices go even higher.
That could increase supplies and push down prices again.
Investors seem to focus on that reality on Thursday, when they pushed the price of crude to levels seen before OPEC’s meeting in November. The U.S. benchmark for crude was down $1.87 a barrel at $49.49.
The upshot is that the price of oil — and derived products like fuel —is unlikely to increase much in coming months. That will be welcome news to consumers and energy-hungry businesses worldwide but could continue to strain the budgets of some of the more economically-troubled oil-producing nations, like Venezuela and Brazil.
The decision extends a cut of 1.2 million barrels a day by the Organization of the Petroleum Exporting Countries. Non-OPEC countries led by Russia chipped in with a further 600,000-barrel reduction.