A deal has been reached to keep oil production cuts in place for another nine months in a bid to eliminate an oil glut that saw prices fall and affect revenues.
The Organization of Petroleum Exporting Countries (OPEC) decided on Thursday at a meeting in Vienna to extend cuts in oil output by nine months to March 2018, an OPEC delegate said. The producer group has been battling a global glut of crude after seeing prices halve and revenues drop sharply in the past three years.
The cuts are likely to be shared again by a dozen non-members led by top oil producer Russia, which reduced output in tandem with OPEC from January. Non-OPEC producers meet OPEC later on Thursday.
OPEC's cuts have helped push oil from $26 a barrel in early June 2016 to back above $50 a barrel this year, giving a fiscal boost to producers. Many of the producing countries rely heavily on energy revenues and have had to burn through foreign-currency reserves to plug holes in their budgets.
In the latter half of 2016, the 24 countries, including the OPEC cartel and Russia, agreed to cut production by 1.8 million barrels per day in order to reduce global oil inventories to the five-year average.
Belt tightening and unrest
The earlier decline in oil price, which started in 2014, forced Russia and Saudi Arabia to tighten their belts and led to unrest in some oil-producing countries, including Venezuela and Nigeria.
The price rise this year has spurred growth in the US shale industry, which is not participating in the output deal. This has slowed the market's rebalancing with global crude stocks still near record highs.
On Thursday, Riyadh's energy minister Khalid al Falih said at the OPEC meeting that he expected the extension to ease the global crude glut sufficiently by early 2018.
"All the simulations that have been done by OPEC and non-OPEC experts ... demonstrated that we will be within the five-year average in the first quarter of next year," Falih said.
Falih told reporters at the start of the meeting at the headquarters of OPEC that this was "almost certain ... to do the trick."
Not worried about shale
Falih is not worried that higher oil prices helped rival shale oil producers in the United States to increase their output and slow down the reduction in inventories.
"Shale is an important variable but we don't believe it is going to significantly derail or affect what we are doing," he said.
In London late morning, Brent Crude, the global benchmark, was down 38 cents at $53.58. West Texas Intermediate was off 46 cents at $50.90 per barrel.