OPEC IS EXPECTED TO EXTEND OUTPUT CUTS, BUT FOR HOW LONG?

Deal day has arrived and OPEC members said Thursday they were poised to agree to extend their efforts to cut crude-oil production through the end of June and possibly through all of 2018, The Wall Street Journal reports.

“The Organization of the Petroleum Exporting Countries began meeting at its Vienna headquarters to decide how long to keep up a deal struck last year that withholds almost 2% of global petroleum production. The current agreement expires in March,” write Summer Said, Benoit Faucon and Christopher Alessi.

Analysts have said continued cuts are necessary to help OPEC achieve its goal of bringing inventories back to their five-year average and halting a nearly three-year slump in oil prices, which has hurt producers worldwide.

Stockpiles have fallen closer to desired levels since the cuts began, but rising U.S. shale oil output continues to bedevil the cartel’s efforts to rein in global production.

Investors are on edge watching for any signs that the oil cartel and external producers such as Russia may take a defensive position against American producers by including a provision to review the cuts, with a possible option of terminating the deal prematurely if the shale oil juggernaut threatens to swamp the market with crude.

A shorter deal could upset the market, some analyst say, though others suggest it would not take investors by surprise.

“No matter what it’s still about price over volume. It’s still about OPEC and Russia standing behind the market and the price and cut as needed but also being ready to protect against the downside,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “If it’s a general review I think the market can swallow that.”

OIL GAINS AHEAD OF OPEC’S DECISION ON CUTS

Oil prices edged up on Thursday after having fallen steadily this week on uncertainty over the outcome of OPEC’s meeting.

Brent crude, the global oil benchmark, rose 1.41% to $64.00 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.54% at $57.61 a barrel.

Oil got a boost after Saudi energy minister Khalid al-Falih said he preferred an agreement that lasted all the way through 2018 but said any agreement would be reviewed in June, when the cartel meets again.

“We will not lift our foot from the pedal,” Mr. Falih said.

WHY THE OIL RECOVERY IS ABOUT MORE THAN OPEC CUTS

It is not all about supply. Crude owes its rising fortunes to several factors, including rising demand, writes Mr. Alessi.

Nearly a year into an OPEC-led agreement to curb global oil production, crude prices have risen to their highest levels since 2015. The price of Brent crude—the global benchmark—has climbed roughly 34% since year-to-date lows in June.

Rising global demand and geopolitical risks that have threatened supply disruptions have also supported crude futures, alongside the OPEC-led production deal.

Those factors could keep oil prices rising no matter what OPEC does at its meeting.

“Demand has been increasing over the past year, siphoning off an oversupply of crude. The International Energy Agency expects demand to stand at 98.2 million barrels a day in the fourth quarter of this year, compared with 96.7 million barrels a day during the same period last year,” reports the Journal.