Oil falls as OPEC prepares to extend output cuts

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Published May 25, 2017

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London - Oil prices fell on Thursday as

OPEC ministers met to decide how long to extend oil production

cuts in an attempt to drain a global glut that has depressed

markets for almost three years.

One OPEC delegate at the meeting in Vienna said the group of

14 oil producers had agreed to extend cuts in production by nine

months to March 2018.

Brent crude oil dropped as much as $1.24 a barrel to

a low of $52.72 before regaining some ground to trade 80 cents

lower at $53.16 by 1100 GMT US light crude was 90

cents lower at $50.46.

Both benchmarks were still up about 15 percent from May

lows.

The Organisation of the Petroleum Exporting Countries and

other producers, including Russia, had been widely expected to

agree to extend a cut in oil supplies of 1.8 million barrels per

day (bpd) until the end of the first quarter of 2018.

OPEC's current deal, agreed at the end of last year, only

covers the first half of 2017.

Saudi Arabia's energy minister, Khalid al-Falih, said OPEC

was highly likely to roll over its existing agreement on the

same terms for nine months.

But that disappointed some investors who had hoped that OPEC

might reduce output even further to drain stocks more quickly.

"It is a disappointment that OPEC hasn't done more to

balance the markets," said Olivier Jakob, energy markets analyst

at Swiss consultancy Petromatrix.

"A nine-month extension of the output cuts is already baked

into prices. This shows there's not much more OPEC can do."

Amrita Sen, analyst at consultancy Energy Aspects agreed.

"Nine months was priced," she said. "We thought the market

would sell off if it was just (an extension of) nine months."

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Energy consultancy Wood Mackenzie said keeping existing oil

output at current levels for another nine months would result in

a 950,000 bpd production increase in the United States, thus

undermining OPEC's efforts to balance supply and demand.

US oil production  has already risen by more

than 10 percent since mid-2016 to more than 9.3 million bpd as

drillers take advantage of higher prices and the supply gap left

by OPEC and its allies.

OPEC ministers were still meeting behind closed doors by

1100 GMT on Thursday. 

REUTERS

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