The cuts are likely to be shared again by a dozen non-members led by top oil producer Russian Federation, which reduced output in tandem with OPEC from January.
To counter the U.S. shale industry’s sudden oil boom, the OPEC, in 2014, flooded the market with excess oil causing a supply glut. Three years ago, US shale producers needed to see prices of $70 to $80 per barrel to be competitive, he said.
You see, American shale oil is expensive to produce, but when oil prices rise, like they did after November 30, this shale oil becomes much more profitable.
“Following the meeting, we have seen both Brent and WTI trading lower on the news as a proportion of the market had priced in the potential for deeper cuts”.
Gary Ross, head of global oil at PIRA Energy, a unit of S&P Global Platts said yesterday that Russian Federation and Saudi Arabia will be the biggest supporter of the oil production cut down because they have some huge events coming on the way in near future.
In December, Opec agreed its first production curbs in a decade and the first joint cuts with 11 non-Opec producer nations, led by Russian Federation, in 15 years.
The American production surge offset some of OPEC’s oil cut, but not almost all of it. Crude oil prices fell quite sharply in the aftermath of this announcement however, with many investors clearly having hoped for more aggressive cuts.
U.S. West Texas Intermediate (WTI) crude futures CLc1 remained below $50, at $49.05, though up 15 cents from their last close.
In the meeting at OPEC headquarters in Vienna, energy ministers from OPEC and non-OPEC countries agreed to extend the oil production cut until March next year. Non-OPEC countries led by Russian Federation chipped in with a further 600,000-barrel reduction.
Gaining back some of the losses, Brent crude futures were up 0.56 percent to $51.75 per barrel as of 9:45 am GMT on Friday.
“Next year, we actually think USA oil production won’t increase as much because they’ve increased so much this year”, Yergin said.
“Three years ago, USA shale producers needed to see per-barrel prices much higher to competitive”, Yergin said.
The latest weekly USA oil rig data is due at 1:00 p.m. EDT from energy company Baker Hughes.