Opec agrees joint 1.2M bpd cut with partners

OPEC members and 10 other oil producing nations, including Russia, agreed on Friday to cut output by 1.2 million barrels per day (bpd) in a bid to reverse falls in prices in recent months.

Energy ministers reached the deal – which takes effect from January 1 but has already sent prices surging on oil markets – after two days of talks at Opec headquarters in Vienna.

“Opec group countries are contributing 800,000bpd as a cut, and the non-Opec [countries] will be contributing 400,000bpd,” UAE Minister of Energy and Industry Suhail Mohammed Faraj al-Mazrouei said at a news conference.

Opec and its partners, which together account for around ha lf of globa l output, met against the backdrop of a glut in the market which had led to oil prices falling by more than 30 per cent in two months.

Mazrouei said three countries had been allowed exemptions from the agreement due to “special circumstances”.

“Those count r ies a re Ira n and Venezuela because of the sanctions and Libya because of t he fact t hat unfortunately they are on and off,” he added, a l lud i ng to t he i mpact on L ibya n product ion of continuing conf lict t here.

Mazrouei said the exemptions mean that the cuts introduced by other member states are “going to be a bit higher than just the average for everyone”.

For his part Russian Minister of Energy Alexander Novak – whose country is the world’s second biggest producer of oil – said the agreement “should help the market reach a balance” and recognised that negotiations had been “complex”.

Not enough?

The price of Brent crude, the European benchmark, surged 4.43 per cent on Friday to $62.7 as of 1715 GMT.

But some said Friday’s deal may not be enough to keep oil prices buoyant.

“I would describe the cuts as close but not close enough with regards to eliminating the global oil glut,” said London brokerage PVM oil expert.

“A combined reduction of 1.5 million bpd was needed to avoid a supply surplus in the first half of next year,” he said.

“Accordingly, the price outlook for the coming few months still remains skewed to the downside despite today’s knee-jerk reaction.”

The deal was announced after Novak held bilateral meetings with several counterparts, including Iranian Minister of Energy Bijan Namdar Zanganeh, before the full meeting.

However, the major players all had their own reasons to look to others to act first and the details of how any cuts will be shared out will be key.

Novak said that Russia, which leads the non-member countries in the so-called Opec+ alliance, would introduce cuts “gradually” to allow for “climatic and technical conditions” but aimed to reach the cuts target “in the next few months.

Meanwhile, Opec kingpin Saudi Arabia had to bear in mind pressure from the US after President Donald Trump demanded i n a t weet on Wednesday t hat t he ca r tel boost output so as to lower prices and help the economy.

The kingdom’s diplomatic position has been badly weakened by the furore over the killing of Saudi journalist Jamal Khashoggi.

Trump insists he will stick by Riyadh despite the outrage but he has been also ramping up the pressure for more oil.

However, at Friday’s press conference Saudi Minister of Energy, Industry and Mineral Resources Khalid al-Falih sought to play down Trump’s influence on the decision, saying: “Over 2018, I have met with consumers in Asia more often than I have read tweets coming out of the White House.”

India had also asked for action to bring down high oil prices, he said.

In addit ion, whi le admitt ing t hat “many consumers a re suf fer i ng f rom t he hig h cost of energ y”, Falih said: “I take the opportunit y to plead w it h consu mer nat ions to ta ke it easy on their own people wit h ta xation,” cla iming that this was the main driver of prices at the pump.

In June, Opec and its partners ag reed to a l low for a boost in production by Saudi Arabia and Russia to compensate for the expected losses in output from Iran after the US dramatically withdrew from the Iran nuclear deal in May a nd decided to re-i mpose tough sanctions.

However, the US then granted temporary waivers to eight countries, including crucially China, to allow them to carry on importing Iranian oil, contributing to a plunge in oil prices which wiped out the gains seen since early last year.