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OPEC meets to extend oil cuts for up to one year

08 June 2017

The Organization of the Petroleum Exporting Countries (OPEC) renewed an agreement with 10 other crude-oil producers to withhold output through March 2018, a move aimed at putting a floor under the price of oil.

Non-OPEC producers, including Russian Federation, the world's largest oil producers, were to meet with OPEC to decide on their own output levels on Thursday, potentially amplifying the effect on the market.

The extension would come after a landmark deal at the end of 2016 which saw Opec and other countries, including Russian Federation, agree to cut production by 1.8m barrels per day in the first half of this year.

While low prices were welcome news to firms and to consumers filling up their cars, this blew a hole in the finances of oil-producing nations, even rich Gulf countries.

A nine-month extension period is believed to be optimal by the producers, according to Saudi Minister of Energy, Industry and Mineral Resources Khalil al-Falih. Thursday's meeting in Vienna was expected to sign off on this.

"All the simulations that have been done by OPEC and non-OPEC experts. demonstrated that we will be within the five-year average in the first quarter of next year", Falih said.

More than 400 oil rigs are now working US shale fields " an increase of more than 120 percent compared to a year ago.

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Opec and major non-Opec nations put in place production cuts at the start of this year in a bid to stabilise oil prices.

When the oil price was at its nadir, scores of U.S. firms went bankrupt.

USA oil production has already risen by 10 per cent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.

Falih said on Thursday that Saudi exports would fall in June and were below what customers had demanded.

When the price was at rock-bottom, scores of USA shale oil producers went bust.

But the market was unimpressed. The price of West Texas Intermediate oil, the USA benchmark crude, declined 3.8% to $49.39 at 1:06 p.m.

As markets have been expecting the current output limit to be extended, benchmark prices for European and U.S. oil did not rise on Thursday but fell to USD53.24 and USD50.56 per barrel respectively.