OPEC set to extend oil supply cut as Iran endorses pact

Daniel Fowler
July 2, 2019

Khalid Al-Falih, minister of Energy, Industry and Mineral Resources of Saudi Arabia, arrives for a meeting of the Organization of the Petroleum Exporting Countries and non-OPEC members in Vienna, Austria, Monday, July 1, 2019.

"Iran supports cooperation with non-OPEC states, but as long as some members of OPEC are hostile against other members, like Iran, OPEC's understandings with non-OPEC states are meaningless and there is no room for cooperation", Zanganeh said.

OPEC and other, allied major oil producers have agreed to extend crude oil production cuts for another nine months, in a move created to keep oil prices from falling as USA production increases and concerns grow about global demand.

The decision among the members of the Organization of the Petroleum Exporting Countries came during a meeting Monday at the cartel's headquarters in Vienna.

The current deal to support prices reduced production by 1.2 million barrels per day starting from January 1 for six months, and will now run into next year.

Tensions between the USA and Iran and attacks on tankers near the Strait of Hormuz have sent oil prices higher in recent days.

The Organization of the Petroleum Exporting Countries along with other top producers, including Russian Federation, agreed on Tuesday to extend oil supply cuts until March 2020 as members overcame differences to try to prop up prices.

The price of Brent crude, the global standard, rose 32 cents Monday to $64.06 a barrel.

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Saudi Arabia, OPEC's dominant producer, pledged to keep doing the heavy lifting as the cartel was all but forced to extend its effort to counter the USA shale boom into a fourth year. A nine-month supply reduction would leave room for shale producers to increase their supply and eat into Opec's existing market share.

Tensions between the US and Iran and attacks on tankers near the Strait of Hormuz have pushed up oil prices in recent days.

"It appears that the supply side of the oil equation is supportive for oil prices but demand concerns are forcing oil bulls to keep at least part of their gunpowder dry", PVM analyst Tamas Varga wrote in a note.

The aim is to shore up prices amid a sluggish outlook for demand on the back of a global economic slowdown.

Giovanni Staunovo, oil analyst for UBS, told The Daily Telegraph: "We believe due to the [existing] Opec production cuts the market will be undersupplied in the second half".

The world's major oil producers are set to continue their output cuts.

Opec's meeting comes against a background of ample global crude supplies, according to both the cartel and International Energy Agency.

The structure of the Brent crude market suggests futures investors may be losing faith that the OPEC+ extension will be enough to stave off a looming oil surplus as demand wanes. "Markets are still looking out for details of OPEC's agreement". It followed a rally across global markets after the G20 meeting over the weekend raised hopes of a peace deal in the US-China trade war.

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