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Oil price down in spite of OPEC production cuts

File photo of an oil tanker in the Bab Al-Mandab
File photo of an oil tanker in the Bab Al-Mandab

The price of crude oil dropped five per cent after the close of a meeting by the Organisation of the Petroleum Exporting Countries (OPEC) yesterday.

Hailed a success, the meeting saw ministers congratulated each other after they agreed to extend the existing production cuts to nine months, from the six months which had previously been approved.

In spite of this, prices dropped.

Experts believe this is because the meeting was expected to extend cuts to 12 months and thus the outcome was worse than the market had anticipated.

“OPEC oversold the meeting to the market way too early,” Amrita Sen, from the consultancy Energy Aspects, told Reuters in Vienna. “If you declare nine months in advance, people are bound to expect more.”

“I have been in OPEC close to 20 years. It’s the first time that I witness 100 per cent compliance [with cuts] from OPEC and close to 100 per cent from non-OPEC,” Iranian Oil Minister Bijan Zanganeh told Reuters afterward.

“It’s strange. I don’t know why [the market crashed],” Zanganeh said.

OPEC and non-OPEC oil producers first agreed to cut output in December 2016 – the first joint deal in 15 years – and said the curbs could be extended by a further six months.

The meeting brought together the 14-member group and its non-OPEC allies including Russia in Vienna, Austria, for a two-day meeting which began on Wednesday.

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