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Oil prices fall as Opec extends output cuts by 9 months to drain glut

Global oil glut has depressed markets for almost three years

Reuters  |  London 

Opec, Opec logo, Opec headquarters
A TV camera is seen inside the headquarters of the Opec in Vienna, Austria. Photo: Reuters

fell on Thursday as ministers of the (Opec) agreed to extend the oil production cuts by nine months in an attempt to drain a global glut that has depressed for almost three years.

An delegate at the meeting in Vienna said the group of 14 oil producers had agreed to extend cuts in production by nine months to March 2018.

Brent dropped as much as $1.24 a barrel to a low of $52.72 before regaining some ground to trade 80 cents lower at $53.16 by 11:00 GMT. US light crude was 90 cents lower at $50.46.

Both benchmarks were still up about 15 per cent from May lows.

The and other producers, including Russia, had been widely expected to agree to extend a cut in oil supplies of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.

Opec's current deal, agreed at the end of last year, only covers the first half of 2017.

Saudi Arabia's energy minister, Khalid al-Falih, said the was highly likely to roll over its existing agreement on the same terms for nine months.

But that disappointed some investors who had hoped that the might reduce output even further to drain stocks more quickly.

"It is a disappointment that the hasn't done more to balance the markets," said Olivier Jakob, energy analyst at Swiss consultancy Petromatrix.

"A nine-month extension of the output cuts is already baked into prices. This shows there's not much more can do."

Amrita Sen, analyst at consultancy Energy Aspects agreed.

"Nine months was priced," she said. "We thought the market would sell off if it was just (an extension of) nine months."

Energy consultancy Wood Mackenzie said keeping existing oil output at current levels for another nine months would result in a 950,000 bpd production increase in the United States, thus undermining the Opec's efforts to balance supply and demand.

US oil production has already risen by more than 10 per cent since mid-2016 to more than 9.3 million bpd as drillers take advantage of higher prices and the supply gap left by the and its allies.

ministers were still meeting behind closed doors by 11:00 GMT on Thursday.