Global oil prices were little-changed Tuesday after OPEC members agreed to extend their pact of output cuts well into next year, citing an improving global economy and the ongoing boom in shale boom in the United States that has lifted domestic production to record levels.
OPEC members backed a nine-month extension to their collective production cuts, which were first agreed in December of 2018, following a tense meeting in Vienna late Monday that was ultimately swung by pressure from Saudi Arabia, which had pushed for the agreement following a weekend meeting with non-member ally Russia at the G20 Summit in Osaka. Saudi Energy Minister Khalid al-Falih said the recent trade detente between the U.S. and China, as well record American production from its recently-tapped shale fields, meant global markets could weather an extension of the output cuts that will take 1.2 million barrels from the market each day until the first quarter of next year.
"I have no doubt in my mind that U.S. shale will peak, plateau and then decline like every other basin in history," Al-Falih said late Monday in Vienna. "Until it does I think it's prudent for those of us who have a lot at stake, and also for us who want to protect the global economy and provide visibility going forward, to keep adjusting to it."
Brent crude contracts for August delivery, the global benchmark, were seen 22 cents lower from their Monday close in New York and changing hands at $64.84 per barrel in early European trading. WTI contracts for the same month, which are more tightly linked to U.S. gas prices, were also marked 22 cents lower at $58.87 per barrel.
Crude gains were capped by lingering demand concerns following a series of manufacturing PMI data Monday that indicated the lowest level of global factory output since 2012.
"Extending cuts for nine months rather than six should give the market some comfort that OPEC is looking at the supply and demand picture beyond this year," said ING's head of commodities strategy Warren Patterson. "However looking at the price action, the market clearly was not that impressed with the deal. This does suggest that participants are more concerned about why OPEC needs to prolong cuts into 2020- weaker than expected demand growth, along with robust non-OPEC supply."
Last month, the U.S. Energy Department trimmed its forecast for world demand yesterday to around 1.22 million barrels per day in its regular Short-Term Energy Outlook report, a 160,000 reduction from its prior forecast. It also lowered its growth estimate for 2020 by 110,000 to 1.42 million barrels per day.
"EIA forecasts that U.S. production will increase by 1.4 million b/d in 2019 and by 0.9 million b/d in 2020, with 2020 production averaging 13.3 million b/d," the Energy Information Administration said. "Despite EIA's expectation for slowing growth, the 2019 forecast would be the second-largest annual growth on record (following 1.6 million b/d in 2018), and the 2020 forecast would be the fifth-largest growth on record."
At the same time, the EIA said US output would rise to 13.3 million barrels per day by next year, while output from the country's seven major shale formations, including the Permian Basin and the Anadarko and Eagle Ford regions, would hit an all-time high of 8.52 million barrels this month.