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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

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