OPEC agrees on first out­put cut since 2008

Rus­sia to re­duce pro­duc­tion too Oil jumps above $50

Kuwait Times - - FRONT PAGE -

The OPEC oil car­tel de­fied ex­pec­ta­tions yes­ter­day and nailed down its first joint out­put cut since 2008 af­ter tough talks in Vi­enna, send­ing oil prices soar­ing. Brent North Sea crude for Jan­uary de­liv­ery was up $3.77 at $50.15, the first time it has risen above $50 in a month. West Texas In­ter­me­di­ate was up $3.98 at $49.21. The ac­cord an­nounced by the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries is aimed at re­duc­ing a global sup­ply glut that has kept prices painfully low.

It rep­re­sents a dramatic re­ver­sal from OPEC’s Saudiled strat­egy, in­tro­duced in 2014, of flood­ing the mar­ket to pressure ri­vals, in par­tic­u­lar US shale oil pro­duc­ers. The car­tel will lower its monthly out­put by 1.2 mil­lion bar­rels per day (bpd) to 32.5 mil­lion bpd from Jan 1, Qatar’s en­ergy min­is­ter and pres­i­dent of the OPEC con­fer­ence said. “This is a ma­jor step for­ward and we think this is a his­toric agree­ment, which will def­i­nitely help re­bal­ance the mar­ket and re­duce the stock over­hang,” Mo­hammed bin Saleh Al-Sada told a news con­fer­ence in Vi­enna. He also said that the deal will help lift global in­fla­tion ac­cel­er­ate to a “more healthy rate”, in­clud­ing in the United States.

It fi­nal­izes a pre­lim­i­nary deal struck in Septem­ber in Al­ge­ria when OPEC agreed to cut pro­duc­tion but left the de­tails to clear up later. Ne­go­ti­a­tions got bogged down in a game of poker be­tween OPEC’s three big­gest pro­duc­ers, Saudi Ara­bia, Iraq and Iran, on who would do the heavy lift­ing. Iraq had said it did not want to pump less crude be­cause it was short of money to fight Is­lamic State group ex­trem­ists. It also dis­puted how much it ac­tu­ally pro­duced.

Iran has only been able to freely to ex­port oil since last year’s nu­clear deal came into force in Jan­uary, and wants to re­turn to pre-sanctions out­put lev­els. The dis­pute was com­pli­cated by the fierce ri­valry be­tween Iran and Saudi Ara­bia, back­ing dif­fer­ent sides in the wars in Ye­men and Syria. Fawad Raza­qzada, a mar­ket an­a­lyst at Forex.com, said be­fore OPEC’s an­nounce­ment that Iran was “play­ing a clever game” against its archri­val.

But Saudi Ara­bia also played hard­ball, say­ing it was pre­pared to leave the Aus­trian cap­i­tal with­out a deal. En­ergy Min­is­ter Khaled Al-Falih had said re­cov­er­ing de­mand will boost prices next year - cut or no cut. Even though ex­pec­ta­tions were there­fore low, fail­ure to get a deal would have sent oil prices tum­bling, per­haps as low as $30 per bar­rel, an­a­lysts had said. Also it would have reignited de­bate about the very pur­pose of OPEC, 56 years af­ter its cre­ation.

Saudi Ara­bia would con­trib­ute around 0.5 mil­lion bpd by re­duc­ing out­put to 10.06 mil­lion bpd, a source said, while Iran would freeze out­put at close to cur­rent lev­els of 3.797 mil­lion bpd and other mem­bers would also cut pro­duc­tion. “OPEC has proved to the skep­tics that it is not dead. The move will speed up mar­ket re­bal­anc­ing and ero­sion of the global oil glut,” said OPEC watcher Am­rita Sen from En­ergy As­pects.

Fo­cus will now turn to OPEC’s ef­forts to get non­mem­bers, in par­tic­u­lar Rus­sia, to re­duce their out­put by a hoped-for 600,000 bpd. Rus­sia has said it is ready only to freeze pro­duc­tion but Sada said yes­ter­day that Rus­sia has com­mit­ted to re­duc­ing its out­put by 300,000 bpd. Be­fore the meet­ing, Falih said OPEC was fo­cus­ing on sig­nif­i­cant cuts and hoped Rus­sia and other non-OPEC pro­duc­ers would con­trib­ute a re­duc­tion of an­other 0.6 mil­lion bpd. “It will mean that we (Saudi) take a big cut and a big hit from our cur­rent pro­duc­tion and from our fore­cast for 2017,” Falih said. Ira­nian Oil Min­is­ter Bi­jan Zan­ganeh yes­ter­day said he was pos­i­tive since Iran had not been asked to cut out­put. He also said Rus­sia was ready to re­duce pro­duc­tion. “Moscow have agreed to re­duce their pro­duc­tion and cut af­ter our de­ci­sion,” Zan­ganeh said.

While con­sumers might not wel­come the more ex­pen­sive fuel that a deal would bring, OPEC mem­bers’ pub­lic fi­nances have been shot to bits by two years of rock-bot­tom prices. It has ex­ac­er­bated an al­ready des­per­ate sit­u­a­tion in Venezuela, where Hu­man Rights Watch says short­ages of ba­sics are so bad that there is a “pro­found hu­man­i­tar­ian cri­sis”. Even fab­u­lously wealthy Saudi Ara­bia has slashed salaries and spend­ing and is on course for a bud­get deficit of $87 bil­lion in 2016, and owes for­eign firms bil­lions in un­paid bills. The low crude price has also hit in­vest­ment in oil fa­cil­i­ties, rais­ing the prospect of oil short­ages fur­ther down the line.

How­ever, fur­ther down­wards pressure on oil prices could come from the United States and pres­i­dent-elect Donald Trump, whose poli­cies could see a re­newed rise in US oil pro­duc­tion. Trump has promised to elim­i­nate reg­u­la­tions re­strict­ing frack­ing, sup­port oil and gas pipe­line con­struc­tion and open re­stricted fed­eral lands and off­shore ar­eas for ex­plo­ration, in­clud­ing Alaska. — Agen­cies

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