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| As Their Clout Wanes, Saudi Arabia and Russia Extend Oil Production Cuts | As Their Clout Wanes, Saudi Arabia and Russia Extend Oil Production Cuts |
| (about 3 hours later) | |
| With oil markets flagging, the world’s two biggest oil exporters agreed on Monday to extend production cuts for several months, sending the price of crude soaring. | With oil markets flagging, the world’s two biggest oil exporters agreed on Monday to extend production cuts for several months, sending the price of crude soaring. |
| Major oil-producing nations have struggled of late to bolster prices, as inventories piled up and crimped the potential for demand. Prices dipped below $44 a barrel this month, their lowest level in more than a year. | Major oil-producing nations have struggled of late to bolster prices, as inventories piled up and crimped the potential for demand. Prices dipped below $44 a barrel this month, their lowest level in more than a year. |
| Countries like Saudi Arabia and Russia — which are heavily dependent on energy sales to fund national budgets and government services — are trying to manage the markets by promising to reduce production. The move on Monday pushed oil prices up by nearly 3.8 percent, to almost $50 a barrel, the highest level in about three weeks. | Countries like Saudi Arabia and Russia — which are heavily dependent on energy sales to fund national budgets and government services — are trying to manage the markets by promising to reduce production. The move on Monday pushed oil prices up by nearly 3.8 percent, to almost $50 a barrel, the highest level in about three weeks. |
| The strength in oil prices sent American stocks to new highs. With energy shares surging, the Standard & Poor’s 500 index surpassed its record, closing just above 2,400 points. | |
| The latest swings are proving problematic for global producers. For years, Saudi Arabia and other nations in the Organization of the Petroleum Exporting Countries were often able to easily prop up prices. But their clout has ebbed as new players like American shale producers came into the market and the growth in demand for oil slowed. | The latest swings are proving problematic for global producers. For years, Saudi Arabia and other nations in the Organization of the Petroleum Exporting Countries were often able to easily prop up prices. But their clout has ebbed as new players like American shale producers came into the market and the growth in demand for oil slowed. |
| Amid weak prices late last year, OPEC countries, along with Russia, agreed to cut around 1.7 million barrels from their collective output. It worked for a while as markets recovered. But the higher prices also drew in OPEC’s rivals, including shale oil producers in the United States. | Amid weak prices late last year, OPEC countries, along with Russia, agreed to cut around 1.7 million barrels from their collective output. It worked for a while as markets recovered. But the higher prices also drew in OPEC’s rivals, including shale oil producers in the United States. |
| That is forcing Saudi Arabia and Russia to step in again. The two countries agreed on Monday to lower their production levels for nine months longer than originally agreed, through next March. OPEC, of which the Saudis are the de facto leaders, is likely to follow suit when its 13 members meet in Vienna on May 25. | That is forcing Saudi Arabia and Russia to step in again. The two countries agreed on Monday to lower their production levels for nine months longer than originally agreed, through next March. OPEC, of which the Saudis are the de facto leaders, is likely to follow suit when its 13 members meet in Vienna on May 25. |
| Oil prices rose to their highest level in weeks after Monday’s announcement. At the end of trading, West Texas Intermediate crude settled at $48.85 a barrel, up $1.01, while Brent crude rose 98 cents to $51.82. | |
| “What OPEC, and to some extent Russia, and these other countries have been doing since the price collapse of 2014 is pretending to manage the market,” said Robert McNally, a former White House energy adviser who is president of the Rapidan Group, a Washington-based research firm, and the author of a recent book on oil booms and busts titled “Crude Volatility.” | “What OPEC, and to some extent Russia, and these other countries have been doing since the price collapse of 2014 is pretending to manage the market,” said Robert McNally, a former White House energy adviser who is president of the Rapidan Group, a Washington-based research firm, and the author of a recent book on oil booms and busts titled “Crude Volatility.” |
| In reality, Mr. McNally said, they were simply “managing or manipulating sentiment.” | In reality, Mr. McNally said, they were simply “managing or manipulating sentiment.” |
| OPEC and other big oil producers, in effect, are no longer the only voice in the market. | OPEC and other big oil producers, in effect, are no longer the only voice in the market. |
| It is a marked shift for a bloc that even today accounts for about a third of the world’s oil production. In the late 1990s, a series of cuts by OPEC, as well as other producers outside the organization, lifted prices after a collapse to the $10 per barrel range. | It is a marked shift for a bloc that even today accounts for about a third of the world’s oil production. In the late 1990s, a series of cuts by OPEC, as well as other producers outside the organization, lifted prices after a collapse to the $10 per barrel range. |
| Now, they are fighting a wave of forces beyond their control. | Now, they are fighting a wave of forces beyond their control. |
| In the short term, large amounts of crude remain unsold and in storage. Saudi Arabia and Iran, in particular, have been selling some of those stores, blunting the impact of the cuts, according to Richard Mallinson, an analyst at the research firm Energy Aspects. And higher prices in recent months have thrown a lifeline to shale oil companies in the United States, where output had plunged when prices fell. With prices around $50 a barrel, production from shale companies is surging again. | In the short term, large amounts of crude remain unsold and in storage. Saudi Arabia and Iran, in particular, have been selling some of those stores, blunting the impact of the cuts, according to Richard Mallinson, an analyst at the research firm Energy Aspects. And higher prices in recent months have thrown a lifeline to shale oil companies in the United States, where output had plunged when prices fell. With prices around $50 a barrel, production from shale companies is surging again. |
| Shale and other sources are likely to fill in whatever gaps OPEC production cuts created in the market. And OPEC may be making things easier for shale producers by agreeing to rein in output for such a long period. | Shale and other sources are likely to fill in whatever gaps OPEC production cuts created in the market. And OPEC may be making things easier for shale producers by agreeing to rein in output for such a long period. |
| “It is now becoming very clear that the cuts aren’t making the oil market rebalance sooner,” said Rob West, a partner at Redburn, a market research firm in London. “They are prolonging the glut.” | “It is now becoming very clear that the cuts aren’t making the oil market rebalance sooner,” said Rob West, a partner at Redburn, a market research firm in London. “They are prolonging the glut.” |
| In the longer term, increased use of electric cars and more efficient use of energy may contribute to slowing growth in world demand, analysts say. In April, the International Energy Agency, the Paris-based monitoring group, forecast that oil demand growth would slow in 2017 for the second straight year, citing gains in the fuel efficiency of motor vehicles in the United States in particular. | In the longer term, increased use of electric cars and more efficient use of energy may contribute to slowing growth in world demand, analysts say. In April, the International Energy Agency, the Paris-based monitoring group, forecast that oil demand growth would slow in 2017 for the second straight year, citing gains in the fuel efficiency of motor vehicles in the United States in particular. |
| The current output cuts, which went into effect in January, may also have been less significant than the fanfare that greeted them might suggest. | The current output cuts, which went into effect in January, may also have been less significant than the fanfare that greeted them might suggest. |
| In the months before the cuts came into effect, OPEC countries produced flat out. As a result, when they finally throttled back, they were effectively just returning to more normal levels. | In the months before the cuts came into effect, OPEC countries produced flat out. As a result, when they finally throttled back, they were effectively just returning to more normal levels. |
| Saudi Arabia, which has taken the brunt of the cuts, produced only about 170,000 fewer barrels a day in April than it had in the same period a year earlier. That is equivalent to about 2 percent of its previous total output, and a tiny fraction of global oil demand. | Saudi Arabia, which has taken the brunt of the cuts, produced only about 170,000 fewer barrels a day in April than it had in the same period a year earlier. That is equivalent to about 2 percent of its previous total output, and a tiny fraction of global oil demand. |
| “What they have chosen is restraint rather than huge cutbacks,” said Bhushan Bahree, an OPEC analyst at IHS Markit, a research firm. | “What they have chosen is restraint rather than huge cutbacks,” said Bhushan Bahree, an OPEC analyst at IHS Markit, a research firm. |
| And some OPEC members like Libya and Nigeria, who are exempt from the cuts, are now substantially increasing output. Libya, for instance, is producing over 800,000 barrels per day, more than double the level of a year ago. | And some OPEC members like Libya and Nigeria, who are exempt from the cuts, are now substantially increasing output. Libya, for instance, is producing over 800,000 barrels per day, more than double the level of a year ago. |
| The calculations are complex for the bloc. | The calculations are complex for the bloc. |
| Three years ago, Saudi Arabia and others decided to do nothing, even as prices dropped swiftly from more than $100 a barrel. Riyadh argued at the time that bolstering prices would spur investment in rival sources of energy like American shale producers, and it hoped that lower prices would kill those rivals’ growth. | Three years ago, Saudi Arabia and others decided to do nothing, even as prices dropped swiftly from more than $100 a barrel. Riyadh argued at the time that bolstering prices would spur investment in rival sources of energy like American shale producers, and it hoped that lower prices would kill those rivals’ growth. |
| As OPEC nations continued to pump oil at high levels, prices dropped to around $30 per barrel early last year. So with the Saudis’ budget getting pummeled by the loss of oil revenue, they had to reconsider the strategy. | As OPEC nations continued to pump oil at high levels, prices dropped to around $30 per barrel early last year. So with the Saudis’ budget getting pummeled by the loss of oil revenue, they had to reconsider the strategy. |
| Ali al-Naimi, the Saudi oil minister for two decades, lost his job, and his successor, Khalid al-Falih, a veteran oil executive, traveled the world promising to restore balance to the market. Those efforts ultimately paid off when OPEC and other major producers like Russia agreed to trim output. | Ali al-Naimi, the Saudi oil minister for two decades, lost his job, and his successor, Khalid al-Falih, a veteran oil executive, traveled the world promising to restore balance to the market. Those efforts ultimately paid off when OPEC and other major producers like Russia agreed to trim output. |
| It appears that, for now, they are sticking to that path. | It appears that, for now, they are sticking to that path. |
| In a statement on Monday, Saudi Arabia and Russia said they had “agreed to do whatever it takes to achieve the desired goal of stabilizing the market,” adding that a deal between major oil exporters to reduce production should be extended through the end of March. | In a statement on Monday, Saudi Arabia and Russia said they had “agreed to do whatever it takes to achieve the desired goal of stabilizing the market,” adding that a deal between major oil exporters to reduce production should be extended through the end of March. |
| The two countries said they would work with others ahead of the Vienna meeting, “with the goal of reaching full consensus on the nine-month extension.” | The two countries said they would work with others ahead of the Vienna meeting, “with the goal of reaching full consensus on the nine-month extension.” |
| “What they looked to do,” said Mr. Mallinson, the analyst, “is send a positive surprise by exceeding market expectations.” | “What they looked to do,” said Mr. Mallinson, the analyst, “is send a positive surprise by exceeding market expectations.” |