OPEC seeks to re­claim past glory with oil pro­duc­tion cut


VI­ENNA | Break­ing with years of in­ac­tion, OPEC agreed Wed­nes­day to cut its oil out­put for the first time since 2008. The move ef­fec­tively scraps its strat­egy of squeez­ing U.S. com­pe­ti­tion through high sup­ply, a strat­egy that badly back­fired by low­er­ing prices and drain­ing the car­tel’s own economies.

The re­duc­tion of 1.2 mil­lion bar­rels a day is sig­nif­i­cant, leav­ing OPEC’s daily out­put at 32.5 mil­lion bar­rels. And OPEC Pres­i­dent Mo­hammed Bin Saleh Al-Sada said non-OPEC na­tions are ex­pected to pare an ad­di­tional 600,000 bar­rels a day off their pro­duc­tion.

The com­bined cut will re­sult, at least in the short term, in some­what more pricey oil — and, by ex­ten­sion, car fuel, heat­ing and elec­tric­ity. The in­ter­na­tional bench­mark for crude jumped 8.3 per­cent, or $3.86, to $50.24 on Wed­nes­day.

In the longer term, how­ever, an­a­lysts say it’s highly un­likely that oil will re­turn to the highs of around $100 a bar­rel last seen two years ago. That’s partly due to the fact that Pres­i­dent-elect Don­ald Trump has promised to free up more oil drilling in the U.S., which would in­crease global sup­ply. De­mand is also not re­cov­er­ing as the world econ­omy sags.

Play­ing trib­ute to “a his­toric mo­ment,” Mr. Al-Sada said Wed­nes­day’s move “will def­i­nitely bal­ance the mar­ket and help [in] re­duc­ing the stock over­hang.”

Mr. Al-Sada said the OPEC cut­back is to take ef­fect Jan. 1, with con­sul­ta­tions planned on the ex­act tim­ing of the non-OPEC re­duc­tions. Rus­sia alone is com­mit­ted to tak­ing 300,000 bar­rels a day off the mar­ket. With the pro­duc­tion cut, OPEC will not only ben­e­fit from gain­ing more dol­lars per bar­rel. It can also lay claim once again to play­ing a part in in­flu­enc­ing world prices.

And its ten­ta­tive al­liance with Rus­sia and other non-OPEC na­tions may give it — and them — ad­di­tional clout in fu­ture com­pe­ti­tion for mar­ket share with U.S. pro­duc­ers, who are sure to re­turn in in­creas­ing num­bers if crude prices move up­ward.

Wed­nes­day’s de­ci­sion was a de­par­ture from years of in­fight­ing among mem­bers re­fus­ing to give up their mar­ket share and a re­sult­ing series of in­con­clu­sive meet­ings.

In an­other re­flec­tion of new­found dis­ci­pline within the car­tel, Mr. Al-Sada said In­done­sia’s mem­ber­ship had been sus­pended af­ter it re­fused to ac­cept its share of pro­posed out­put cuts, re­duc­ing the num­ber of OPEC coun­tries to 13.

Part of the fo­cus fol­low­ing Wed­nes­day’s de­ci­sion is how well it holds. OPEC gave up as­sign­ing quo­tas in part be­cause mem­bers have ig­nored them in their quest for petrodol­lars.

But of­fi­cials were dis­play­ing new con­fi­dence. In com­ments ad­dressed to naysay­ers about his or­ga­ni­za­tion’s rel­e­vance, Mr. Al-Sada said Wed­nes­day’s de­ci­sion “means the weight of OPEC and the re­siliency of OPEC is still there and it will con­tinue to be there.”

Meet­ings to turn the planned non-OPEC cuts into re­al­ity are planned next month in Doha. From Moscow, Rus­sian Energy Min­is­ter Alexan­der No­vak con­firmed his coun­try’s readi­ness to pare 300,000 bar­rels from its out­put, adding that it would hap­pen grad­u­ally “within a short pe­riod of time based on tech­ni­cal ca­pac­ity.”

Still, an­a­lysts sug­gested price up­swings would be rel­a­tively mod­er­ate — and the fall­out min­i­mal, at least for the United States. Sal Gu­atieri, se­nior econ­o­mist at BMO Cap­i­tal Mar­kets, said oil should rise to an av­er­age $53 a bar­rel next year.

For the U.S. econ­omy, that’s “a sweet spot ... a high-enough price to spur in­vest­ment in the energy in­dus­try but not enough to se­ri­ously drain pur­chas­ing power” of con­sumers, he said.

“The losers are Europe and Ja­pan — oil-im­port­ing re­gions of the world” with barely grow­ing economies, said Mr. Gu­atieri.

One of the big­gest hur­dles to Wed­nes­day’s deal had been a ri­valry be­tween Saudi Ara­bia and Iran, whose strug­gle for dom­i­nance in the Mideast is also play­ing out in cor­ri­dors of the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries.


Mo­hammed Bin Saleh Al-Sada (left), min­is­ter of Energy and In­dus­try of Qatar and OPEC pres­i­dent, talks with Mo­ham­mad Sanusi Barkindo, OPEC Sec­re­tary Gen­eral of Nige­ria, af­ter an OPEC meet­ing its head­quar­ters in Vi­enna, Aus­tria on Wed­nes­day.

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