OPEC logo. Picture: REUTERS / RAMZI BOUDINA
OPEC logo. Picture: REUTERS / RAMZI BOUDINA

Vienna — Oil cartel Opec agreed on Monday to extend oil supply cuts until March 2020, three Opec sources said, as the group's members overcame their differences in order to prop up the price of crude amid a weakening global economy and soaring US production.

It is likely that the move will anger US President Donald Trump, who has demanded Opec leader Saudi Arabia supply more oil and help reduce prices at the pump if Riyadh wants US military support in its standoff with arch-rival Iran.

Benchmark Brent crude has climbed more than 25% so far in 2019 after the White House tightened sanctions on Opec members Venezuela and Iran, slashing their oil exports.

Opec and its allies led by Russia have been reducing oil output since 2017 to prevent prices from sliding amid soaring production from the US, which has overtaken Russia and Saudi Arabia as the world's top producer.

Fears about weaker global demand as a result of a US-China trade spat have added to the challenges faced by the 14-nation Opec.

"Saudi Arabia is doing its best to achieve oil prices at $70 per barrel despite what Trump wants. But they haven’t accomplished that even with Iranian and Venezuelan oil exports dropping. And the reasons for that are weak demand and US shale growth," Black Gold Investors' Gary Ross said.

The US, the world's largest oil consumer, is not a member of Opec, nor is it participating in the supply pact. A jump in oil prices might lead to costlier petrol, a key issue for Trump as he seeks re-election in 2020.

Brent rose as much as $2 on Monday towards $67 per barrel as traders cited Opec's resolve to curb output.

Worsening geopolitical risk

The Opec meeting on Monday will be followed by talks with Russia and other allies, a grouping known as Opec+, on Tuesday.

Russian President Vladimir Putin said on Saturday he had agreed with Saudi Arabia to extend existing output cuts of 1.2-million barrels per day, or 1.2% of global demand, until December 2019 or March 2020.

Oil prices could stall as a slowing global economy squeezes demand and US oil floods the market, a Reuters poll of analysts found.

"I think nine months gives us enough runway to wait for the market to balance," Saudi energy minister Khalid al-Falih said.

He said Saudi Arabia would continue reducing supplies to customers in July.

Iran's exports plummeted to 300,000 barrels per day (bpd) in June from as much as 2.5-million bpd in April 2018 due to Washington's new sanctions.

The sanctions are putting Iran under unprecedented pressure. Even in 2012, when the EU joined US sanctions on Tehran, the country's exports stood at around one-million bpd. Oil represents the lion's share of Iran's budget revenues.

Washington has said it wants to change what it calls a “corrupt” regime in Tehran. Iran has denounced the sanctions as illegal and says the White House is run by “mentally retarded” people.

"Worsening tensions between the US and Iran add potential for oil price volatility that could be tricky for OPEC members to manage," said Ann-Louise Hittle, vice-president for macro oils at consultancy Wood Mackenzie.

Reuters