Baystreet.ca's Top Story of the Week: OPEC Agrees to Cut Production

Opec and some non-Opec producers agreed at a meeting in Vienna on Thursday to extend supply cuts of 1.8-million barrels a day until the end of the first quarter of 2018.

The Canadian dollar weakened against its US counterpart on Thursday, pulling back from a five-week high as oil prices fell after OPEC signalled it would go no further with production cuts than markets previously expected.

The OPEC and non-OPEC meeting in Vienna agreed to extend the existing level of oil production at 1.8 million barrels per day.

There are arguments whether the cut needs to be for 6 months or nine months or 12 months.

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Early indications from USA futures prices suggest a similar pullback on Wall Street Friday, with modest declines priced into both the Dow Jones Industrial Average and the broader S&P 500, the latter of which printed its second-consecutive all-time high Thursday when it closed at 2,415.07 points. That would cut off about 2% of the world's oil supply over the remaining nine months of the agreement.

So, while OPEC's seemingly unflappable ability to cobble together an agreement has managed to keep a floor under prices this year, the group's tactics haven't fixed the underlying problem.

Those two factors caused oil futures traders to bid oil prices down on news of higher oil production numbers.

"Following the meeting, we have seen both Brent and WTI trading lower on the news as a proportion of the market had priced in the potential for deeper cuts". The low steep in the exports of oil commodity is the primary reason for this complete scenario and hence they are forced to reduce the oil production. Producers have more tools to further support prices if needed, Russia's Energy Minister Alexander Novak said in a Bloomberg television interview.

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The American production surge offset some of OPEC's oil cut, but not almost all of it.

"I think OPEC is actually back in business [but] as a swing producer", he said. Three years ago, US shale producers needed to see prices of $70 to $80 per barrel to be competitive, he said.

The deal agreed a year ago saw the group's member countries reduce production by 1.2 million barrels a day to 32.5 million barrels, effective from January, and it has succeeded in pushing prices back above the $50 benchmark.

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