Crude prices weakened on Tuesday and Wednesday despite a deal by oil producing countries to continue with production curbs.
The 14-nation energy cartel, the Organisation of Petroleum Exporting Countries (OPEC), and non-members which support its aims agreed a nine-month extension to output limits first imposed at the end of 2016.
“Bearishness is prevalent”
This morning, Brent was down 0.18% at $62.29 a barrel, and WTI closed last night at $56.25.
Both are markedly lower than they were three months ago. On 2 April, Brent traded at $69.37, while WTI changed hands at $62.58.
A squeeze on prices is coming from two directions – the slowing of the world economy and the rising output of America’s shale oil industry.
This presented a sombre backdrop for the two-day summit in Vienna held Monday and Tuesday involving OPEC and the so-called NOPEC group of oil producers.
In a statement after the meeting, OPEC said: “It was noted that economic bearishness is now increasingly prevalent, with major challenges and mounting uncertainties related to ongoing trade negotiations, monetary policy developments, as well as geo-political issues.
“It was also observed that oil demand growth for 2019 has been revised down.”
OPEC added: “[We] observed the potential consequences of these developments on global inventory levels, as well as overall market and industry sentiment.”
The output curbs, it said, would be extended to 31 March 2020. The deal takes 1.2 million barrels a day out of production, which equates to something like 1.2% of daily output.
Given the tight supply-demand picture, even such a relatively modest amount can have a significant effect on the price. Furthermore, the prices are already being indirectly supported by US sanctions against two OPEC members, Iran and Venezuela, which keep some oil off the market.
“Vital to take responsibility”
“With this decision,” said OPEC, “member countries confirmed their continued focus on fundamentals and commitment to a stable and balanced oil market, in the interests of producers, consumer, and the health of the global economy.”
The summit agreed to also put the OPEC-NOPEC alliance on a more formal footing, with the publication of a Charter of Co-operation. Quoted by America’s National Public Radio, Khalid al-Falih, Saudi Arabia’s energy minister, said: “We are bringing a group of producers permanently into a bigger fence…to sort of work together as a bigger family.”
It noted high levels of “conformity” by participating countries with their output quotas. In the past, OPEC curbs have been undermined by countries cheating on their quotas to pump more oil, taking advantage of the higher prices made possible by the sacrifices of others, but compliance is currently at about 90%.
But the conference warned: “It remains vital that each participating country takes full responsibility for its own adjustments.”
Overall, 25 countries are involved in the agreement. OPEC takes in, along with Saudi Arabia and Iran, countries including Angola, Iraq, the United Arab Emirates, Nigeria, Kuwait and Libya. The NOPEC group is unofficially led by Russia, with Oman, Azerbaijan, Mexico Malaysia, Kazakhstan, Brunei and South Sudan.