In a meeting at the OPEC headquarters in Vienna Austria on Thursday, OPEC decided to extend production at their current rate of 1.2 million bpd for an additional 9 months. OPEC will almost certainly be joined in these production cuts by a dozen other non-OPEC oil producing nations. The group of non-OPEC reducing nations is led by Russia, which will continue its production cut that began in December when the previous round of OPEC cuts which began. The non-OPEC share of the production cuts is expected to be around 600,000 bpd.
The production cuts have been credited with keeping oil priced at over $50 a barrel for much this year, adding much needed fuel to the economies the nations of OPEC. Most of the nations in OPEC are extremely reliant on the revenue from oil sales to fund their governments. The previous three years have seen oil prices fall by 50%, which has forced many OPEC nations to use the bulk of their foreign currency reserves to fill gaps in their federal budget.
The United States, through its utilization of oil shale has become the third largest producing nation in the world, and its market share is expected to continue to grow for the foreseeable future. The US did not participate in the last round of production cuts and will not participate in this one. In fact during the OPEC led production cut the US has increased its oil production by nearly 600,000 bpd, which has mitigated the effectiveness of these cuts. The effect of the cuts was further mitigated by OPEC members selling off existing stocks of oil above their production in order to retain their market share.
The goal of the production cuts is to reduce global oil stockpiles, from a record high of over 3 billion barrels down to the five year average of 2.7 billion barrels. According to Saudi Energy Minister Khalid al-Falih, members of OPEC debated a 12 month extension of the production cut, but deemed it unnecessary. Experts speculate that in order for this cut to meet its stated goal all the nations agreeing to the cut will have to participate fully, did not happen during the last cut.
