OPEC extension comments drive oil prices past $50

Oil prices broke through the $50 mark weekend, having trended upward throughout the week on the back of a joint announcement from Saudi Arabia and Russia supporting a production deal extension.

The rally stemming from the announcement of Saudi Arabia and Russia on a nine-month extension seemed to have run its course by mid-week, but oil moved higher again on Friday. WTI rose above $50 for the first time in nearly a month.

OPEC’s official meeting will take place this week Thursday, and most analysts expect an extension of at least six months, and more likely nine months due to the support from Saudi Arabia and Russia. However, there is quite a bit of dispute over whether or not the extension will be sufficient.

Some see the extension as enough to drain inventories back to average levels, while others expect rising U.S. shale output to swamp the deal. In any event, to a large degree the OPEC extension is already priced into the market, and any “pop” in prices will probably be modest. As the end of the initial phase of the OPEC cuts draws near, that data suggests that OPEC members achieved a high level of compliance but the non-OPEC members that promised to reduce their output lagged in their commitments.

Collectively, 21 nations are trying to curb output by almost 1.8 million barrels a day, with most of them using October’s production levels as their starting point. Last month, 10 of those countries met their targets, compared to nine in March, revised data show. But the big players matter most. Only five of nations producing more than a million barrels a day in April cut output as agreed, according to Bloomberg calculations.

The Organization of Petroleum Exporting Countries has largely complied with its output targets this year, due to the actions of a handful of members. Saudi Arabia, the group’s biggest producer, has achieved at least 120 percent compliance in every month since the curbs took effect in January, OPEC’s secondary source estimates show. Five OPEC nations achieved compliance in April. Members Libya and Nigeria are exempt from the agreement, and Iran is allowed to boost output.

Olusola Bello