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OPEC production caps to continue to end of 2018

OPEC, and its oil-producing allies outside of the organisation, met in Vienna to agree to extend the current production caps to the end of 2018.

The announcement was largely expected, but Russia had previously express concern that such a long extension could cause a price spike. Higher prices could add new momentum to growing US oil production, which government data estimates at 9.48 million barrels per day for September. The United States is not party to the OPEC deal, so US operators like ExxonMobil, who supplies Mobil distributors in the UK, are free to increase output as they see fit.

The renewed deal now provides some clarification about how the deal will be wound down should the market tighten too much. With low winter demand approaching, Saudi Energy Minister Khalid al-Falih told journalists he does not foresee any talk of exiting the cuts in the next half year, and progress will likely be evaluated at OPEC’s scheduled June meeting. He also added that any exit would take a tapered approach by saying:

“When we get to an exit, we are going to do it very gradually … to make sure we don’t shock the market.”

Having an exit mechanism should help counter danger from supply disruptions that could result from events such as the economic crisis in Venezuela, renewed U.S. sanctions against Iran, and ongoing tensions in the Middle East.

Another modification to the deal is the introduction of caps for Libya and Nigeria, which were previously exempted to compensate for supply disruptions resulting from militant activity.

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