Oil pro­duc­ers join forces, trim pro­duc­tion again

Calgary Herald - - FINANCIAL POST - AN­THONY MILLS, KIYOKO MET­ZLER AND DAVID RIS­ING

Oil prices spiked sharply higher Fri­day as ma­jor oil pro­duc­ers, in­clud­ing the OPEC car­tel, agreed to cut global oil pro­duc­tion by 1.2 mil­lion bar­rels a day to re­duce over­sup­ply.

Fol­low­ing two days of meet­ings, the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries that in­cludes the likes of Saudi Ara­bia and Iraq said they would cut 800,000 bar­rels per day for six months from Jan­uary, though some coun­tries such as Iran, which is fac­ing widerang­ing sanc­tions from the United States, have been given an ex­emp­tion.

The bal­ance will come from Rus­sia and other non-OPEC coun­tries. The United States, one of the world’s big­gest pro­duc­ers, is not part of the deal.

“This is a ma­jor step for­ward,” said United Arab Emi­rates’ En­ergy Min­is­ter Suhail Mo­hamed al-Mazrouei, who chairs the reg­u­lar meet­ings in Vi­enna in his ca­pac­ity as pres­i­dent of the OPEC Con­fer­ence.

Oil pro­duc­ers have been un­der pres­sure to re­duce pro­duc­tion fol­low­ing a sharp fall in oil prices over the past cou­ple of months. The price of oil has fallen about 25 per cent re­cently be­cause ma­jor pro­duc­ers — in­clud­ing the U.S. — are pump­ing oil at high rates.

The re­duc­tion has cer­tainly met with the re­sponse hoped for by min­is­ters as it was at the up­per end of most pre­dic­tions. Fol­low­ing the an­nounce­ment, Brent crude, the in­ter­na­tional stan­dard, was up US$2.79 a bar­rel, or 4.7 per cent, at US$62.85. Bench­mark New York crude was US$2.11, or 4.1 per cent, higher at US$53.60 a bar­rel.

Ann-Louise Hit­tle, a vice-pres­i­dent at oil in­dus­try ex­pert Wood Macken­zie, said the pro­duc­tion cut “would tighten” the oil mar­ket by the third quar­ter next year and help lift Brent prices back above US$70 per bar­rel.

“For most na­tions, self-in­ter­est ul­ti­mately pre­vails,” she said. “Saudi Ara­bia has a long-term goal of manag­ing the oil mar­ket to avoid the sharp falls and spikes which hurt de­mand and the abil­ity of the in­dus­try to de­velop sup­ply. On top of this, Saudi Ara­bia also needs higher oil rev­enues to fund do­mes­tic Saudi spend­ing.”

Rus­sian En­ergy Min­is­ter Alexan­der No­vak called the ne­go­ti­a­tions with the OPEC na­tions “fairly chal­leng­ing” but said the de­ci­sion “should help the mar­ket reach a bal­anced state.”

“I think this is a strong sig­nal to any­body who has doubted it that our co-oper­a­tion is con­tin­u­ing and we can re­act to any chal­lenge the mar­ket throws at us,” he said in Rus­sian through a trans­la­tor.

OPEC’s re­liance on non-mem­bers like Rus­sia high­lights the car­tel’s wan­ing in­flu­ence in oil mar­kets, which it had dom­i­nated for decades.

The OPEC-Rus­sia al­liance was made nec­es­sary in 2016 to com­pete with the United States’ vastly in­creased pro­duc­tion of oil in re­cent years. By some es­ti­mates, the U.S. this year be­came the world’s top crude pro­ducer.

The cut is un­likely to be greeted warmly by U.S. Pres­i­dent Don­ald Trump, who has been pres­sur­ing the car­tel pub­licly to main­tain pro­duc­tion. On Wed­nes­day, he tweeted: “Hope­fully OPEC will be keep­ing oil flows as is, not re­stricted. The World does not want to see, or need, higher oil prices!”

One stum­bling block to an agree­ment had been Iran, Saudi Ara­bia’s re­gional ri­val and fel­low OPEC mem­ber, which had been ar­gu­ing for an ex­emp­tion to any cuts be­cause its crude ex­ports are al­ready be­ing pinched by U.S. sanc­tions.

Al-Mazrouei said that in the end Iran had been given an ex­emp­tion, as well as Venezuela and Libya.

That “means that the per­cent­age we will con­trib­ute among us is go­ing to be a bit higher,” he said.

“We within OPEC are com­mit­ted to dis­trib­ute the 800 (thou­sand bpd) among us and de­liver on it.”

RON­ALD ZAK/AP

“This is a ma­jor step for­ward,” says United Arab Emi­rates En­ergy Min­is­ter Suhail Mo­hamed al-Mazrouei, who is also pres­i­dent of the OPEC Con­fer­ence, about the car­tel’s move Fri­day to re­duce out­put.

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