The organisation and its allies will cut 1.2mn barrels per day (bpd) of production in 2019.
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After two days of talks in Vienna, the Organisation of the Petroleum Exporting Countries (OPEC) struck a consensus for production cuts in 2019. The group and its allies will cut a combined 1.2mn bpd of production in 2019.
“A production cut of 1.2mn bpd would tighten the oil market by the third quarter of 2019 and cause prices to rise back above $70 per barrel for Brent,” said Ann-louise Hittle, vice president, macro oils, at Wood Mackenzie. “It would help producers contend with the strength of US supply growth in 2019 when we expect a year-on-year increase of 2.4mn bpd in NON-OPEC production as US supply continues to gain sharply.”
OPEC nations will carry the brunt of the cuts, reducing oil production by 800,000 bpd after holdout Iran accepted the deal. Meanwhile, NON-OPEC produc-
ers (with Russia a key player) will cut production by 400,000 bpd.
“I’m confident that our resolve, that our professionalism and our willingness to achieve results is as strong as ever,” Russian Energy Minister Alexander Novak reportedly said of the OPEC+ coalition. “In current conditions it’s extremely important to send a strong signal to the market.”
Russia’s role in the global oil market has grown since OPEC struck a landmark deal with the nation in 2016, agreeing to production cuts which helped bolster oil prices after the 2014 crash. Oil prices have seen some fluctuation in recent months due to a number of factors.
Prior to the reinstatement of US sanctions against Iran, speculation and fear surrounding a potential supply shortage helped oil prices shoot up to a four-year high of $86 per barrel of Brent crude in early October. When sanctions were announced in May 2018, OPEC+ agreed to increase production to fill any supply gap left by Iran, as well as Venezuela, which is facing an ongoing economic crisis.
But sanctions have had a smaller effect than expected. The eight waivers granted by the US surrounding sanctions against Iran have dented its impact, and the surprising ramp up in US shale production helped to push supply growth and lower oil prices.
US production growth was particularly surprising and overshot analyst expectations, as bottlenecks in the Permian Basin were expected to stunt production for a longer period of time. US President Donald Trump has been vocal throughout the oil price fluctuation, calling for OPEC to keep oil prices low.
Russia, Iran and Venezuela had little incentive to cut production, and were seen as potential obstacles to OPEC reaching a deal for 2019. Oil prices dropped to $58 per barrel of Brent crude before the deal was announced, as media reported that Saudi Arabia’s energy minister, Khalid Al Falih, said the country would seek only moderate cuts, and fear grew that OPEC and its allies might not reach a consensus.
Prices made a mild recovery after the output cut was announced, but analyst expectations for 2019 vary—it is difficult to tell where oil prices will go from here.
800,000Barrels per day of production to be cut by OPEC members OPEC members were represented by their respective energy ministers