Published: Tue, July 02, 2019
Markets | By Otis Pena

OPEC Extends Production Cuts For 9 Months, To Shore Up Oil Prices

OPEC Extends Production Cuts For 9 Months, To Shore Up Oil Prices

Iran's oil minister Bijan Zanganeh on Monday said that the members of the OPEC should have unity among themselves, a report by Shana, the Iranian oil ministry news service said.

Ministers of OPEC states gathered in Vienna on Monday to discuss the fate of the deal, before they are joined by ministers from non-OPEC countries on Tuesday.

The decision among the members of the Organization of the Petroleum Exporting Countries came during a meeting Monday at the cartel's headquarters in Vienna. Articles appear on euronews.com for a limited time.

Stephen Innes, managing partner at Vanguard Markets in Bangkok, said oil prices could also be supported in the medium term because of geopolitical tensions in the Middle East and as China's central bank eases monetary policy to offset the impact from USA tariffs.

While a rollover was imminent after an agreement between the Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin on the sidelines of the G20 summit in Osaka on Saturday, the consensus to implement the current drawdown of 1.2 million barrels per day into 2020, is in expectation of declining global demand for crude.

Brent crude futures for September delivery had dropped 33 cents, or 0.5%, to $64.73 a barrel by 0034 GMT.

The current version of the OPEC+ deal calls for production curbs of 1.2 million barrels a day, though the alliance has cut more than it pledged as US sanctions on Iran and Venezuela slashed output from both countries.

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US shale production growth could also slowdown, which would make OPEC+'s job a little easier. This raised concerns that the global economy is headed toward a recession that would lead to lower demand for crude oil.

Meanwhile, in the long-term, changes in transportation - particularly the rise of electric vehicles - and government policies created to reduce the severity of global climate change could put put downward pressure on oil demand. However, the US has also ratcheted up its oil production in recent years.

"The oil market is getting excited about the cut extension, but OPEC appears more and more anxious about demand", said Andrew Dodson, founder of commodity hedge fund Philipp Oil. Compliance among the OPEC+ group as a whole will also improve in the second half, he said. "Iran won't leave OPEC but I believe OPEC is going to die".

The meeting comes against a background of ample global crude supplies, according to both the cartel and the International Energy Agency (IEA).

Since then, the administration of US President Donald Trump is trying to reduce Iran's oil exports to "zero", and has sent an aircraft carrier strike group, a bomber squad, an amphibious assault ship, and a Patriot missile battery to the Middle East to try to stack up pressure on Tehran.

But one factor looms large across the world, the IEA says: Concerns over the future of global trade.

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