OPEC will Retain Production Cuts To Keep Oil Prices High

Expensive oil
Oil barrels (Photo: Twitter)

OPEC is claiming great success in boosting oil prices while keeping its fractious members in line supporting painful production cutbacks.

OPEC and allies such as Russia, which together are called OPEC +, say they will extinguish the oil oversupply in world markets by April. This outcome will again enable OPEC+ to better influence oil prices worldwide, but not on an untrammeled scale gave the competition from American shale oil producers.,

In December 2018, OPEC+ slashed oil production by 1.2 million barrels per day in a concerted move to hike prices to $70 per barrel while eliminating oversupply.

The announcement at Vienna does not include the United States, which is the world's leading oil producer. It followed two days of meetings marked by a consensus among OPEC+ that the worldwide oil glut must end.

Under the deal, OPEC will cut 800,000 barrels per day for six months starting January. On the other hand, some countries such as Iran have received an exemption.

"This is a major step forward," said United Arab Emirates' Energy Minister Suhail Mohamed al-Mazrouei, who is also President of the OPEC Conference.

OPEC will probably achieve its goal of eliminating oversupply from the oil market by April, said Jeff Currie, global head of commodities research at Goldman Sachs.

"OPEC is pursuing a shock and awe strategy" by slashing output at the start of their production-cutting deal," said Currie. He said OPEC is slashing output faster than expected, even as Venezuelan supply continues to plummet.

"This market is likely to be rebalanced by April," he said.,

This stabilized market will force OPEC to reveal its plans for lifting the production cuts by May or June, he said. By making its plans known, OPEC can dissuade U.S. shale oil firms from boosting production, thereby preventing another price-killing oil glut.

Saudi Energy Minister Khalid al-Falih recently said he is amenable to extending the six-month production cut deal into the second half of 2019. Many members of OPEC+ expect to extend the production cuts when they meet in June, according to sources.

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