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OPEC Agrees 9-Month Extension To Production Cut, WTI Oil Price Slides

27 May 2017

The Organization of the Petroleum Exporting Countries (OPEC) and Non-OPEC states on Thursday made a decision to extend the joint oil output cut by nine months to rebalance the global oil market after the ministerial meetings in Vienna.

Another OPEC delegate told the news agency that a 12-month extension of the output cut is still an option. According to the latest data, OPEC countries fulfilled their commitments to reduce production by 104 percent, and non-OPEC countries by 102 percent, " said Natig Aliyev.

The Organization of the Petroleum Exporting Countries, as expected, agreed Thursday to extend its current cap on oil production another nine months, now expiring July 1, 2018.

The cuts are likely to be shared again by a dozen oil exporters outside OPEC led by top producer Russian Federation, which reduced output in tandem with the Organization of the Petroleum Exporting Countries from January.

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OPEC members chose to cut production by 1.2 million barrels per day.

The sharp rise in the United States shale gas pushed up global crude stocks to record highs and kept prices subdued. Those falls reflect disappointment from some market participants that the cartel has decided not to deepen the cuts or extend them by more than the expected nine months.

"All indications are solid that a nine-month extension is the optimum, and should bring us to within the five-year average of inventories by the end of the year".

Novak said OPEC and non-OPEC oil exporting partners had instruments in place to tackle a collapse in oil prices, in an interview with CNBC on Thursday.

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Indeed Nigeria, which derives its revenues from oil mainly, is now in its first recession in 25 years, as a result of a slump in its production spurred by attacks on key infrastructures by militants.

There is still considerable nervousness over the rise of American oil producers, which have doubled the number of rigs in operation over the past year. "Many member countries have indicated flexibility but.that won't be necessary", Khalid al-Falih, Saudi energy minister, said before the meeting.

"We have seen a substantial drawdown in inventories that will be accelerated", Falih said.

Already, Saudi Arabia and Russian Federation, a non-OPEC state - both world's top two oil producers - have agreed on the need to prolong the current cuts until March 2018.

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