OPEC and its allies to cut the oil production for nine more months after last year’s landmark agreement failed to eliminate the global oversupply or achieve a sustained price recovery.
The producer group together with Russia and other non-members agreed to prolong their accord through March, but no new non-OPEC countries will be joining the pact and there was no option set out to continue curbs further into 2018.
The market was unimpressed as prices tumbled more than 5 percent to under $49 a barrel in New York and more than a billion barrels were traded.
Six months after forming an unprecedented coalition of 24 nations and delivering output reductions that exceeded all expectations, resurgent production from U.S. shale fields has meant oil inventories remain well above the level targeted by OPEC.
While stockpiles are shrinking, ministers acknowledged the surplus built up during three years of overproduction won’t clear until at least the end of 2017. The group is prepared for a long game.
“We’ve said we’ll do whatever is necessary,” Saudi Oil Minister Khalid Al-Falih said Thursday after the meeting in Vienna. “That certainly includes extending the nine months further. We’ll cross that bridge when we get to it.”
Al-Falih said the cuts are working, adding that stockpile reductions will accelerate in the third quarter and inventory levels will come down to the five-year average in the first quarter of next year.
While he expects a “healthy return” for U.S. shale, that won’t derail OPEC’s goals and a nine-month extension will “do the trick,” he said.
Nigeria and Libya will remain exempt from making cuts and Iran, which was allowed to increase production under the original accord, retains the same output target, Kuwait’s Oil Minister Issam Almarzooq said after the meeting. That deal gave the Islamic Republic room to increase output to a maximum of 3.797 million barrels a day.
The Joint Ministerial Monitoring Committee — composed of six OPEC and non-OPEC nations — will continue watching the market and can recommend further action if needed, said Almarzooq.
The market is already giving the committee plenty to think about. Futures dropped as low as $48.45 a barrel in New York on Thursday, before settling at $48.90.
“The market seems to be a bit disappointed as there is no ‘something extra,’” said Jan Edelmann, a commodity analyst at HSH Nordbank AG. “It seems as though OPEC fears letting the stock-draw run too hot.”
The Organization of Petroleum Exporting Countries agreed in November to cut output by about 1.2 million barrels a day. Eleven non-members joined the deal in December, bringing the total supply reduction to about 1.8 million.
The curbs were intended to last six months from January, but confidence in the deal, which boosted prices as much as 20 percent, waned as inventories remained stubbornly high and U.S. output surged.
The extension prolongs a rare period of collaboration between OPEC and some of its largest rivals, including Russia. The last time both sides worked together was 15 years ago, and the agreement fell apart soon after it began. The current accord encompasses countries that pump roughly 60 percent of the world’s oil, but excludes major producers such as the U.S., China, Canada, Norway and Brazil.
Without a steer on what will happen beyond March, there’s concern that OPEC could return to the free-for-all production that caused prices to slump from 2014 to 2016, though Al-Falih has insisted the organization will maintain control.
“The fact that we have not elaborated on a specific strategy for the second quarter, the second half of 2018, should not be interpreted as that we don’t have a strategy,” he said.
“We will develop it based on the conditions that present themselves at that time.”
Al-Falih earlier announced that OPEC is welcoming a new member, Equatorial Guinea, to its ranks. The African nation will be one of the group’s smallest producers, pumping about 270,000 barrels a day, a little more than neighboring Gabon. It was already participating in the cuts as a non-OPEC producer.