Investing.com – OPEC has given oil bulls the deep production cuts they sought, though not for as long as they wanted them. Crude prices drifted on the news as the market worried again about whether the cartel would be able to do enough to overcome a glut forecast in the coming year.
U.S. West Texas Intermediate crude was down 9 cents at $58.34 per barrel by 12:46 PM ET (17:46 GMT) after settling the previous session up $2.33, or 4.1%.
U.K. Brent, the global benchmark for crude, rose 17 cents, extending modestly Wednesday’s gain of $2.18, or 3.6%.
OPEC oil ministers meeting in Vienna on Thursday had agreed to one of their deepest output cuts for this decade, though they were still debating how long the curbs should last, Russian Energy Minister Alexander Novak said. Russia is an ally of OPEC and would be meeting the cartel members on Friday in an extended group called OPEC+.
Novak said Thursday’s meeting was working on deepening existing supply curbs of 1.2 million barrels per day by another 500,000 bpd. The cut of 1.7 million bpd would amount to 1.7% of global supply.
But the cuts would likely only last through the first quarter of 2020, a much shorter timeframe than suggested by some OPEC ministers, who have called for extending cuts until June or December 2020. OPEC could in theory decide to approve a longer timeframe than OPEC+.
Russia itself has shown resistance to deeper cuts and longer timeframes for output reductions beyond the first quarter.
Novak also said OPEC ministers have agreed with Russia that they will change the way the cartel has been calculating Moscow’s oil output – a methodology that has resulted in Russian production being constantly seen as above pledged levels.
Moscow has been including condensates – a high-premium light type of crude mainly extracted during gas production – in its output data, boosting overall numbers. If that’s subtracted, then Russian output will return to OPEC compliance levels.
“The devil is really in the details here, and until we see it all on paper from OPEC, we won’t really know what’s been agreed and what’s not,” said John Kilduff, founding partner at New York energy hedge fund Again Capital.
“Why Novak is speaking for OPEC and not OPEC+ is still a mystery to me but essentially, OPEC was already at a 140% compliance on the 1.2 million bpd cuts," he added. "So this additional 500,000 bpd will only take another net 100,000 bpd off. And according to Novak, it will only be until Q1 next year and Russia might technically be overproducing with the free pass they’ve got on condensates. That’s why the market isn’t getting excited.”