Uncertainty over extension of oil-output cut among oil producers

A joint committee of ministers from OPEC and non-OPEC oil producers has agreed to review the possible extension of a global pact to limit supplies by six months, the committee said on Sunday.

An earlier draft of the statement, Reuters news agency reports, had said the committee “reports high level of conformity and recommends six-month extension”.

But the final version said only that the committee had requested a technical group and for the OPEC Secretariat to “review the oil market conditions and revert … in April, 2017 regarding the extension of the voluntary production adjustments”.

Oil sector analysts said the lack of an immediate extension could drag on crude prices.

“The dropping of the recommendation to extend cuts in favor of technical review committee is likely to lead to a lot of disappointment and potential further liquidation of long positions by money managers that will put downward pressure on oil prices,” said Harry Tchilinguirian, head of commodities strategy at BNP Paribas in
London.

It was not immediately clear why the wording had been changed, although a senior industry source said the committee lacked the legal mandate to recommend an extension.
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The Organisation of the Petroleum Exporting Countries and rival oil-producing nations were meeting in Kuwait to review progress with their global pact to cut supplies.

OPEC and 11 other leading producers including Russia agreed in December to cut their combined output by almost 1.8 million barrels per day (bpd) in the first half of the year.

The original deal was to last six months, with the possibility of a six-month extension.

“Any country has the freedom to say whether they do or they don’t support (an extension). Unless we have
conformity with everybody, we cannot go ahead with the extension of the deal,” Kuwaiti Oil Minister Essam al-Marzouq said, adding that he hoped a decision would come by the end of April.

The oil ministerial committee “expressed its satisfaction with the progress made towards full conformity with the voluntary production adjustments and encouraged all participating countries to press on towards 100 per cent conformity,” the statement said.

Kuwait’s oil minister said the market may return to balance by the third quarter of this year if producers comply fully with their production targets.

“More has to be done. We need to see conformity across the board. We assured ourselves and the world that we would reach our adjustment to 100 percent conformity,” Mr. Marzouq said.

The December accord, aimed at supporting the oil market, has lifted crude LCOc1 to more than $50 a barrel.

But the price gain has encouraged U.S. shale oil producers, which are not part of the pact, to boost output.

Compliance with the supply-cut deal was 94 percent in February among OPEC and non-OPEC oil producers combined.

Earlier in November 2016 when the oil-output cut deal was struck, Nigeria, alongside Iran and Libya, had been given special concessions.

Nigeria was recommended for exemption to enable it recover from the negative impact of incessant attacks on its oil facilities by armed militant groups in the Niger Delta region.