OPEC extends oil supply curbs as glut persists

Why OPEC is cutting oil production
Why OPEC is cutting oil production

Major oil producers have struck a deal.

OPEC and key producers including Russia agreed Thursday to extend curbs on oil output to the end of March 2018.

"The cooperation between non-OPEC and OPEC countries will continue, as it has already yielded very good results," said Russian energy minister Alexander Novak.

Investors had been expecting a deal to emerge from meetings in Vienna, but some were hoping the group might commit to an even longer extension. Crude prices tumbled by about 5% to trade below $49 barrel after the deal was announced.

"Investors have not been satisfied that OPEC is tackling the issue aggressively enough," said Nizam Hamid, a strategist at WisdomTree.

The group of top producers originally agreed to slash output in November in an attempt to reduce a global oil glut and boost prices. The gamble paid off.

Prices pushed above $54 in the months following the November deal, roughly doubling from the extremely low levels hit in early 2016 when there was severe oversupply.

The new agreement extends the status quo by another nine months.

Related: Trump wants to sell half of emergency U.S. oil reserve

There is still considerable nervousness over the rise of American oil producers, which have doubled the number of rigs in operation over the past year.

Years of low prices forced shale producers in the country to become much more efficient, and turned them into a major market force.

American producers are not part of the output agreement.

OPEC is painfully aware of its diminishing power to influence the market as shale producers gain more clout. Earlier this month it issued an unusual request asking other producers outside the cartel to stop pumping so much and help balance the market.

It said that balancing the market should be done "not only for the benefit of the individual countries, but also for the general prosperity of the world economy."

Related: American oil companies deepen Saudi ties, despite rivalry

OPEC has for weeks been laying the groundwork to extend production cuts. Last week, Russia and de-facto cartel leader Saudi Arabia said they had agreed to maintain lower production.

-- John Defterios contributed reporting.

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