OPEC's oil squeeze to remain, but market wants more

VIENNA: Saudi Arabia's energy minister appeared bullish Thursday that an expected deal among oil producers in Vienna to extend cuts in output would ease a global crude glut.

Oil prices fell however on the back of disappointment that the 24 nations meeting at OPEC headquarters are not considering deeper cuts to offset a sharp rise in US shale output.

Last November 13 members of the Organization of the Petroleum Exporting Countries and 11 others including Russia agreed to cut production by 1.8 million barrels per day (bpd).

The aim was to reduce the massive oil inventories that had helped pushed down the price of oil from over $100 per barrel in 2014 to close to $25 in early 2016.

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.

It exacerbated the crisis in OPEC member Venezuela, where inflation is triple digit, bankruptcy looms and where violence in recent weeks have killed some 50 people.

Since December Brent crude, the global benchmark, has recovered to more than $53 per barrel from about $46, although it has dipped below $50 several times.

- Daggers drawn -

The pact, a dramatic policy turnaround for OPEC that even had regional arch rivals Saudi Arabia and Iran see eye to eye, was due to expire on June 30.

Last week Saudi Arabia and non-OPEC Russia, the biggest of the 24 producers involved -- and who also are anything but best friends -- backed an extension until April 2018.

On Wednesday a joint committee of six OPEC members and non-OPEC nations recommended such a nine-month rollover. Thursday's meeting in Vienna was expected to sign off on this.

Khalid al-Falih, the Saudi energy minister, told reporters that he expected this to "do the trick" of reducing inventories to their five-year average by the first quarter of next year.

- Shale revenge -

However OPEC and the other producers run the risk of being victims of their own success because of shale oil producers in the United States, which are not part of the accord.

Before, OPEC's strategy was to keep pumping at full tilt in order to push the oil price lower and make life difficult for the Americans, who need a higher price to make money.

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

"Shale is a important variable but we don't believe it is going to significantly derail or affect what we are doing," he said.

But the market was unimpressed.

In London late morning, Brent Crude, the global benchmark, was down 38 cents at $53.58. West Texas Intermediate was off 46 cents at $50.90 per barrel.

Chris Beauchamp, market analyst at online trading firm IG, said that Falih's belief that greater cuts are not needed was "quaint".

Alexandre Andlauer from equity research firm Alphavalue called OPEC's strategy "old-fashioned".