Major Producers Suggested Extending Compensation Cuts to Boost International Oil Prices

The organisation of the petroleum exporting countries (Opec) with non-opec ministerial joint supervision committee held a regular meeting on the 17th, announced to the Opec and non-opec ministerial meeting suggested the expires in September to compensate the output mechanism is extended to the end of December of this year, so that the multiple output exceeds the quota of completely fulfill their obligation to cut oil producers.

Buoyed by the news, international oil prices rose significantly on the 17th. Light crude for October delivery rose 81 cents, or 2.02%, to settle at $40.97 a barrel on the New York Mercantile Exchange by the end of the day. Brent crude for November delivery in London rose $1.08, or 2.56%, to settle at $43.3 a barrel.

Bjornal Tunhaigen, senior vice-president and head of oil markets at Resta Energy, said oil prices had been driven higher by market participants' belief that Opec and non-OPEC producers would "come in and rescue" the market at a time of low prices, boosting confidence.

Phil Flynn, senior market analyst at THE US Price Futures Group, said major producers were also open to offsetting extended production cuts until 2021, further supporting international oil prices.

Bad weather and short covering by hedge funds also contributed to the rally.

Offsetting cuts are defined as the need for "substandard" producers to make up for the shortfall by making additional cuts in order to ensure that the agreement between Opec and non-OPEC producers is fully implemented.

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