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OPEC agrees to extend current production cuts by 9 months

Key Points
  • The deal is now subject to approval from non-OPEC allies at a meeting on Tuesday, with Iraq's oil minister saying he did not anticipate any complications.
  • Saudi Energy Minister Khalid al-Falih said Tuesday he was 100% confident non-OPEC producers, including Russia, would agree to a rollover of supply cuts. 
  • The producer group and its allies, sometimes referred to as OPEC+, have been reducing oil output since 2017.
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Saudi energy minister: 9-month extension to output cuts sufficiently long

OPEC agreed to extend production cuts until next March on Monday, as the Middle East-dominated producer group overcame their differences to endorse a policy designed to support oil prices.

The deal is subject to approval from non-OPEC allies at a meeting on Tuesday, with Iraq's oil minister saying he did not anticipate any complications.

Saudi Energy Minister Khalid al-Falih said Tuesday he was 100% confident non-OPEC producers, including Russia, would agree to a rollover of supply cuts.

The producer group and its allies, sometimes referred to as OPEC+, have been reducing oil output since 2017. The policy is designed to prevent prices from sliding amid soaring production from the U.S. — which has become the world's top producer ahead of Russia and Saudi Arabia.

The cuts are running at a volume of about 1.2 million barrels per day.

The U.S. is not a member of OPEC, nor is it participating in the supply pact. Washington has demanded Riyadh pump more oil to compensate for lower exports from Iran after slapping fresh sanctions on Tehran over its nuclear program. However, the U.S. has also ratcheted up its oil production in recent years.

Saudi Energy Minister Khalid al-Falih said in a news conference Monday that, from time to time, OPEC and non-OPEC countries need to trim production to prevent extreme volatility, in response to a question on OPEC's reaction to U.S. shale production.

"I have no doubt in my mind that U.S. shale will peak and the decline like every other basin in history. The question is when," said al-Falih. He said until it does, it would be "prudent for us that have a lot at stake also for those of us who want to protect the global economy" to make adjustments.

Al-Falih added Saudi Arabia has 2.3 million barrels of spare capacity, and that it is producing 9.7 million barrels a day.

The U.S. has been producing 12.1 million barrels per day of oil, according to recent U.S. data, about 1.3 million barrels more than last year.

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What is OPEC?

OPEC and Iran also reached a compromise on a long-term partnership with Russia.

"It's meant to be formalizing the relationship with Russia in particular," said John Kilduff of Again Capital. "Within OPEC, every country has a veto over every deal no matter how little oil they produce. Iran didn't want to be seen to be losing any power to any country outside of OPEC, which seems to be what has been happening with Saudi Arabia and Russia cooking up the production deals."

Iran's oil minister had criticized "unilateralism" among some members of the energy alliance, warning it could ultimately lead to the death of OPEC.

"Once this charter is published and seen, people will see it's a very positive step forward for stability in the energy market for decades to come," said Saudi Arabia's al-Falih in a news conference Monday.

—CNBC's Fred Imbert and Patti Domm contributed to this report.