The Organization of the Petroleum Exporting Countries (OPEC) and other prominent non-member oil producers have agreed to extend output cuts by nine months until March 2018.
Last year, the oil cartel decided to reduce crude production by 1.8 million barrels a day to offset the global oversupply for the first six months of this year. Cuts are likely to be shared among all participants of the deal.
Amid expectations of the cuts being extended, the oil market remained stable. Brent crude oil LCOc1 traded at $53.96, unchanged from previous session, while US light crude CLc1 was down by 10 cents.
Production curbs have helped prices soar above $50 a barrel this year.
It is estimated that the nine-month extension can further increase US production, which can offset the initiative to rebalance the market.
WisdomTree Europe strategy head Nizam Hamid said that the ability of US shale sector to revive and restructure at a corporate level poses a big challenge to OPEC’s price policy.
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Strict compliance level among OPEC members can increase oil prices to $50-$55 a barrel range from sub-$50, but it will also encourage US shale producers to boost production, limiting output-cut effects.
Hamid stated that the deal extension is expected to create short-term volatility and trading opportunities.
Another OPEC delegate told the news agency that a 12-month extension of the output cut is still an option.