NEW YORK: Oil prices dipped on Friday but were on track for weekly gains as a meeting of OPEC and its allies agreed to extend output cuts by 500,000 barrels per day in early 2020.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia - a grouping known as OPEC+ - agreed the cuts were needed to avert oversupply as economic growth stagnates amid the US-China trade war, sources told Reuters.
The cuts are expected to last until March, report agencies.Brent futures were down 19 cents at $63.20 by 1407 GMT but are on track to rise over 1% on the week.
West Texas Intermediate oil futures fell 33 cents to $58.10 a barrel. They are set to rise over 5% on the week.
The cuts next year are in addition to OPEC’s current agreement and represent about 1.7% of global oil output.
“If we were to have an outcome of an extension of cuts with only the official quota of the OPEC+ group being reviewed lower (the 500,000 bpd), rather than actual production, then the change in supply policy would be cosmetic (given below target production in some countries, notably Saudi Arabia and Angola),” said Harry Tchilinguirian, global oil strategist at BNP Paribas.
OPEC is likely to shoulder 340,000 bpd in fresh cuts and non-OPEC producers an extra 160,000 bpd, one source said on Friday.
Any price gains from the OPEC+ output cut are likely to benefit American producers not party to any supply curbing agreement. American drillers have been breaking production records even as they cut the number of oil rigs in operation, filling gaps in global supplies.“North American shale supply will continue growing even in an environment with lower oil prices,” Rystad Energy said in a note.
Higher oil prices are also supporting the initial public offering of Saudi Arabia’s state-owned oil company, Saudi Aramco, which priced its shares on Thursday at the top of an indicated range.
The sale was the world’s biggest initial public offering (IPO), beating Alibaba Group Holdings’ $25 billion listing in 2014, but fell short of a $2 trillion valuation for Aramco sought by Saudi Crown Prince Mohammed bin Salman.