Opec agrees to cut in oil production
Prices jump more than 5% as producers agree to a combined output cut of 1.2m bpd
Oil-producing countries yesterday agreed to cut production by 1.2 million barrels per day from January 2019 for six months to rebalance oil markets and support oil prices.
Brent, the international benchmark, rose $3.11 a barrel, or 5.2 per cent, to $63.17 on the news. Benchmark New York crude was $2.23, or 4.3 per cent, higher at $53.72 a barrel.
At a crucial meeting in Vienna, Opec and non-Opec members like Russia resisted pressure from US President Donald Trump to reduce production to prop up oil prices. Opec will reduce output by 800,000 barrels per day and non-Opec by 400,000 barrels per day, UAE Minister of Energy and Opec President Suhail Al Mazroui said at a press conference.
Exemptions were given to Iran, Venezuela and Libya as their production is hit by sanctions, economic turmoil and conflict respectively. The deal is for six months with review in April 2019. “We among Opec are committed on 800,000 and deliver on it,” said Al Mazroui.
“Saudi Arabia is committed to market stability. Our guiding principle is balancing demand and supply,” said Saudi Energy Minister Khalid Al Falih.
Major accomplishment
Analysts said the agreement is a major accomplishment, particularly by the Saudi authorities, the UAE and Russia.
“Such an agreement would stabilise the oil market. Brent crude oil prices could rise again to the range of $65 to 70 per barrel, as we expected,” Garbis Iradian, Chief Economist for Mena at Institute of International Finance, told Gulf News. “The oil market will [also] be supported by the planned 0.325 mbd decline in Alberta’s oil production from January 2019.”
Ehsan Khoman, Head of Mena Research and Strategy at MUFG Bank Ltd said Opec and its allies have delivered a higher than market consensus, and the agreement is likely to lead to Brent surpassing $70 per barrel by January 2019.
“Critically, the lack of a published quota list by country is a significant departure from the existing production agreement, signalling the heterogeneity between Opec plus members mindsets,” he said adding higher oil prices will help shale producers in the US to increase production.
Earlier in the day, there was a stalemate in the talks as Iran insisted on exemption from output cuts due to US-led sanctions. Iran is the third-biggest oil producer within Opec.
Iranian Minister of Petroleum Bijan Zanganeh told reporters in Vienna that as long as Iran is faced with sanctions, it will not participate in any agreements on production.