OPEC Expands 2016 Agreement For Another 9 Months

The 13 nations that make up the Organization of the Petroleum Exporting Countries reached an agreement to extend a 2016 agreement, which calls for an overall reduction in oil output to help support oil prices.

Several other non-OPEC countries also took part in the agreement, which was scheduled to expire in June. It was unclear if the agreement would be extended, especially amid reports from day one that countries will cheat on the agreement.

9-Month Extension

According to a Bloomberg report, OPEC members agreed to extend its supply cuts for the next nine months and will be meeting with non-OPEC members later on Thursday.

The move to extend the agreement may be the only logical move for OPEC, since its power and influence in the global oil market have eroded and the oil market remains oversupplied.

Saudi Arabia's oil minister, Khalid Al-Falih, said at an OPEC meeting in Vienna that the organization believes that its extension will result in a balanced oil market sooner rather than later. Nigeria's oil minister, Emmanuel Kachikwu, thinks that the extension will create a $50 floor price for one barrel of oil.

Analyst Commentary

Yet OPEC's move might not be enough, at least according to Giovvani Staunovo, an analyst at UBS. He was quoted by Bloomberg as saying that investors have reason to be disappointed by OPEC's extension as it doesn't include any incremental cuts or other actions to better support oil prices.

Staunovo isn't necessarily alone in his thinking. Bill Farren-Price, the CEO of Petroleum Policy Intelligence, an advisory firm for hedge funds and investors, told the New York Times that the OPEC agreement isn't intended to drive oil prices higher, rather it is "more about forestalling an oil price collapse."