Disappointment over OPEC decision weighs on crude
Producers agree to extend cuts by nine months, but go no farther
HIDEMITSU KIBE, Nikkei staff writer
VIENNA -- Crude oil sold off after the Organization of the Petroleum Exporting Countries and other producing nations failed to agree on deeper cuts in output at a conference here Thursday.
OPEC and nonmember producers will instead extend their previously agreed production quotas for another nine months. Following Thursday's deal, U.S. benchmark West Texas intermediate crude futures fell 5% to $48.90 a barrel, around the same price as the end of November, just before the initial OPEC decision to curb output.
But a rise in output of U.S. shale oil is likely to offset the effects of the extended deal. Prices "will swing back and forth in the range of $45 to $55 a barrel for the time being," predicts Tatsufumi Okoshi, a senior economist at Nomura Securities.
If crude remains weak, solidarity among producer nations may waver. Compliance thus far has varied by country.
Saudi Aramco and its shareholder, the Saudi Arabian government, will profit by Thursday's decision, said Khalid al-Falih, the Saudi energy minister. For political reasons, the kingdom wants to keep crude prices stable ahead of next year's initial public offering of state-owned Aramco, whose listing forms an integral part of plans for restructuring the country's oil-dependent economy.
Russia's energy minister, Alexander Novak, stressed that few analysts had expected members to keep to the pact. But his country's cooperative stance is also politically motivated, with presidential elections to take place in March.
Meanwhile, Iraq is waging a costly war to drive the Islamic State extremist group from its stronghold in the northern city of Mosul. Baghdad will desperately need oil revenue for reconstruction if and when it retakes the city.