OPEC agrees 1.2m bar­rel cut with partners

Arab News - - Business - AFP Vienna AFP

OPEC mem­bers and 10 other oil-pro­duc­ing nations agreed on Fri­day to cut out­put by 1.2 mil­lion bar­rels per day (bpd) in a bid to boost prices.

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

“We’ll cut 1.2 mil­lion bpd to­tal,” Iraq’s Oil Minister Thamer Ab­bas Al- Ghad­hban told re­porters af­ter a meet­ing in Vienna.

He said the amount — equiv­a­lent to just over 1 per­cent of global pro­duc­tion — would com­prise an 800,000 bpd re­duc­tion by the 14 mem­bers of OPEC and 400,000 by the 10 non-OPEC partners, in­clud­ing Rus­sia.

OPEC and its partners, which to­gether ac­count for around half of global out­put, agree that a glut in the mar­ket had led to oil prices fall­ing by more than 30 per­cent in two months.

Fri­day’s deal does not how­ever in­clude Iran, which had de­manded an ex­emp­tion from any pro­duc­tion cuts to take into ac­count the ef­fects of pun­ish­ing US sanc­tions on its en­ergy sec­tor. “Of­fi­cially Iran is ex­empted from this res­o­lu­tion,” UAE Oil Minister Bi­jan Nam­dar Zan­ganeh said. The price of Brent crude, the Euro­pean benchmark, surged 5 per­cent on Fri­day af­ter re­ports of the deal emerged.

But some said the re­duc­tion 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 Stephen Bren­nock, oil ex­pert at Lon­don bro­ker­age PVM.

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

“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 Rus­sian En­ergy Minister Alexan­der No­vak held bi­lat­eral meet­ings with sev­eral coun­ter­parts, in­clud­ing Ira­nian Oil Minister 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.

For Rus­sia, which leads the non-mem­ber coun­tries in the so-called OPEC+ al­liance, “it’s much more dif­fi­cult to cut than for other coun­tries, be­cause of our cli­matic con­di­tions,” No­vak said on Thurs­day.

OPEC had to bear in mind pres­sure from the US af­ter Pres­i­dent Don­ald Trump de­manded in a tweet on Wed­nes­day that the group boost out­put so as to lower prices and help the econ­omy.

Saudi En­ergy Minister Khalid Al-Falih said on Thurs­day that “we don’t need per­mis­sion from any­one to cut” pro­duc­tion.

Iran, Saudi Ara­bia’s geopo­lit­i­cal ri­val and OPEC’s third-largest pro­ducer, had sug­gested it is in fa­vor of deeper cuts — de­spite its de­mand for an ex­emp­tion.

In June, OPEC and its partners agreed to al­low for a boost in pro­duc­tion by Saudi Ara­bia and Rus­sia to com­pen­sate for the ex­pected losses in out­put from Iran.

This was af­ter the US dra­mat­i­cally with­drew from the Iran nu­clear deal in May and de­cided to reim­pose 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 that wiped out the gains seen since early 2017.

Saudi Ara­bia’s En­ergy Minister Khalid Al-Falih ar­rives at OPEC.

Thamer Ab­bas Al-Ghad­hbanan

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