Investing.com –The Organization of Petroleum Exporting Countries (OPEC) confirmed on Thursday that both the cartel and non-OPEC members led by Russia have agreed to extend its output cut agreement for another nine months and expect to reach supply target by the end of 2017.
OPEC president and Saudi Arabia’s energy minister Khalid Al-Falih said that oil producers had discussed the length of the extension as ranging from six to 12 months but decided that “the nine month (extension) is the optimum”.
Al-Falih admitted that they also discussed even higher production cuts but that they felt that current levels were sufficient to “reach the five year average by the end of the year” and expected to reach target before year-end.
He explained that the extension was made through the end of March 2018 simply to “avoid the typical seasonal stock build”.
Al-Falih further announced that, due to several market variables, the Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) would continue assess the situation regarding stock targets and recommend any changes.
He also noted that “everyone” would meet again at the next official OPEC meeting on November 30.
In a follow-up to Al-Falih’s initial briefing, Russian energy minister Alexander Novak agreed that the nine-month extension leading to the April 1, 2018 was optimal.
He also noted that the JMMC would be meeting every two months in order to make any necessary recommendations for changes to the agreement.
In the question and answer period, Al-Falih repeated that both groups agreed that nine months an optimal extension, though he insisted that it could be extended if necessary.
“We’ll cross that bridge when we come to it,” he stated.
In response to the eventual ending of the production cut agreement, Al-Falih insisted that “just because we don’t have an exit strategy doesn’t mean we won’t.”
He explained that oil producers will handle that situation once the market is balanced.
Regarding U.S. shale, Al-Falih insisted that “that there is no confrontation between OPEC and shale oil” because “this is a big market”.
OPEC secretary general Mohammad Barkindo also chimed in, claiming that producers were in a “new energy landscape” and that “we have to break barriers and we broke bread with them in Houston”.
Experts and markets “disappointed” with agreement
Hamza Khan, head of commodities at ING, showed himself to be unimpressed, insisting that the original six month agreement had failed to either shrink inventories or boost prices and compared the nine month extension to a “record skipping”.
“With continued production out of the U.S. and, crucially, falling costs from producers in the rest of the world, OPEC’s great white hope is that demand will grow fast enough to absorb its eventual resumption of supplies,” Khan said.
“With soft demand figures globally, that hope is fading nightly,” he added.
ETX Capital senior market analyst Neil Wilson shared a similar opinion. “OPEC members had a chance today but bottled it,” he said.
“A nine-month extension just isn’t enough to really lift oil prices as we’ll continue to see US shale fill the gap,” Wilson continued.
“Having said they’d do whatever it takes, OPEC is looking a bit toothless now,” he concluded.
Markets appeared to share the bearish stance, widening losses as the conference progressed and sinking more than 4% at an intraday low, compared to a little over 3% before Al-Falih began speaking.
As of 1:08PM ET (17:08GMT), U.S. crude futures tumbled 3.80% to $49.41 by, while Brent oil sank 3.54% to $52.05.