OPEC could extend oil production cuts by 9 months

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OPEC could extend oil production cuts by 9 months – Nov. 30, 2017

Is OPEC still relevant?

Have OPEC and allied oil producers struck a winning formula?

The cartel and other major producers including Russia are meeting in Vienna to consider extending production cuts that are set to expire in March 2018.

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Saudi Arabia, the group’s de-facto leader, wants to prolong the supply cuts, which are designed to reduce a global oil glut, by nine months.

Investors are optimistic that a deal will be reached, and U.S. crude futures gained 1% on Thursday to $57.85 a barrel.

OPEC and its allies first agreed to slash output in late 2016, a response to oversupply and an oil price crash.

Data from the International Energy Agency and OPEC show the countries have largely stuck to their agreement. And there are signs that it’s working.

“A lot has been achieved towards stabilizing the market, but to build on this success in 2018 will require continued discipline,” the IEA said in its latest monthly report.

Prices have more than doubled from the extremely low levels hit in early 2016 when there was severe oversupply.

Saudi energy minister Khalid al-Falih told CNNMoney on Thursday that the “best case scenario” is that cuts will be extended until the end of 2018.

Related: Oil hits 2½-year high on Keystone pipeline shutdown

Helima Croft, global head of commodity strategy at RBC Capital Markets, said a nine-month extension of cuts at their current levels is widely expected.

“I don’t think there is any desire to go deeper,” she said.

Croft said the coalition could change the language of the agreement to provide flexibility if market conditions change.

The challenge for Saudi Arabia is keeping producers with different priorities on board.

The cartel is aware of its diminishing power to influence the market as shale producers gain more clout. One big reason is the rise of American oil producers, which are not part of the output agreement.

“The days of OPEC alone being able to take the load of swinging supply to fix imbalances are over,” said al-Falih.

— John Defterios contributed reporting.

CNNMoney (London) First published November 30, 2017: 8:35 AM ET

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