The Organization of the Petroleum Exporting Countries (OPEC) has agreed to extend oil-supply cuts until March 2020, three sources from OPEC told Reuters news agency, as the group’s members overcame their differences in order to prop up the price of crude amid a weakening global economy and soaring United States production.
The move will likely anger US President Donald Trump, who has demanded that OPEC leader Saudi Arabia supply more oil and help reduce prices at the pump if Riyadh wants US military support in its standoff with arch-rival Iran.
OPEC and its allies – led by Russia – have been reducing oil output since 2017 to prevent prices from sliding amid soaring production from the US, which has overtaken Russia and Saudi Arabia as the world’s top oil producer.
Fears about weaker global demand as a result of a US-China trade spat have added to the challenges faced by the 14-nation OPEC.
“Saudi Arabia is doing its best to achieve oil prices at $70 per barrel despite what Trump wants,” said Gary Ross, the CEO of Black Gold Investors. “But they haven’t accomplished that even with Iranian and Venezuelan oil exports dropping. And the reasons for that are weak demand and US shale growth.”
The US, the world’s largest oil consumer, is not a member of OPEC, nor is it participating in the supply pact. A jump in oil prices might lead to costlier petrol at the pumps, a key issue for Trump as he seeks re-election next year.
Brent rose as much as $2 a barrel on Monday – towards $67 – as traders cited OPEC’s resolve to curb output.
The OPEC meeting on Monday will be followed by talks with Russia and other allies, a grouping known as OPEC+, on Tuesday.
Russian President Vladimir Putin said on Saturday he had agreed with Saudi Arabia to extend existing output cuts of 1.2 million barrels per day (bpd), or 1.2 percent of global demand, until December 2019 or March 2020.
But oil prices could stall as a slowing global economy squeezes demand and US oil floods the market, a Reuters poll of analysts found.
“I think nine months gives us enough runway to wait for the market to balance,” Saudi Energy Minister Khalid al-Falih said.
He noted that Saudi Arabia would continue reducing supplies to customers in July.
Iran’s exports plummeted to 0.3 million bpd in June from as much as 2.5 million bpd in April 2018 due to Washington’s fresh sanctions.
The sanctions are putting Iran under unprecedented pressure. Even in 2012, when the European Union joined US sanctions on Tehran, the country’s exports stood at around 1 million bpd. Oil represents the lion’s share of Iran’s budget revenues.
Washington has said it wants to change what it calls a “corrupt” regime in Tehran. Iran has denounced the sanctions as illegal and says the White House is run by “mentally retarded” people.
“Worsening tensions between the US and Iran add potential for oil price volatility that could be tricky for OPEC members to manage,” said Ann-Louise Hittle, vice president of macro oils, at consultancy Wood Mackenzie.