OPEC, al­lies hash out deal to cut oil out­put; prices jump

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VIENNA — Oil prices spiked sharply higher Fri­day as ma­jor oil pro­duc­ers, in­clud­ing the OPEC car­tel and Rus­sia, agreed to cut global oil pro­duc­tion by 1.2 mil­lion bar­rels a day, 20 per­cent more than pre­vi­ously dis­cussed, to re­duce over­sup­ply.

Af­ter two days of meet­ings, OPEC nations, which in­clude 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 wide-rang­ing sanc­tions from the United States, have been given an ex­emp­tion.

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

“This is a ma­jor step for­ward,” said Suhail Mo­hamed al-Mazrouei, the United Ar-

ab Emi­rates’ en­ergy minister who chairs the reg­u­lar meet­ings in Vienna as pres­i­dent of the OPEC Con­fer­ence.

Oil pro­duc­ers have been un­der pres­sure to re­duce pro­duc­tion af­ter a sharp fall in prices over the past cou­ple of months. The price has fallen about 25 per­cent 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. Af­ter the an­nounce­ment, Brent crude, the in­ter­na­tional stan­dard, was up $2.79 a bar­rel, or 4.7 per­cent, at $62.85. Benchmark New York crude was $2.11, or 4.1 per­cent, higher at $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 $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 co­op­er­a­tion 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 non­mem­bers like Rus­sia high- lights 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 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 be­ing pinched al­ready 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.

De­spite Fri­day’s mar­ket re­ac­tion, some an­a­lysts said Saudi Ara­bia and Rus­sia — two of the world’s three big­gest oil pro­duc­ers, along with the United States — might just be push­ing back a reck­on­ing for a few months. They noted that sup­plies from the United States, mainly from shale pro­duc­ers, had been in­creas­ing faster than most an­a­lysts ex­pected a few months ago.

“The OPEC-plus cuts an­nounced to­day fall short of the amount needed to pre­vent large stock builds early next year given the sup­ply tsunami un­der­way,” said Robert McNally, pres­i­dent of Rap­i­dan En­ergy Group, a mar­ket re­search firm.

McNally was also skep­ti­cal that there would be full com­pli­ance with the agree­ment, not­ing that with the ex­cep­tion of Saudi Ara­bia and Rus­sia, it was not clear how the cuts would be al­lo­cated.

In 2014, the U.S. oil in­dus­try’s fate seemed to rest in the hands of OPEC min­is­ters who were flood­ing the mar­ket with cheap oil. Now, the car­tel is in full re­treat, agree­ing to cut out­put to keep their own economies healthy even as U.S. pro­duc­tion con­tin­ues to surge.

The move came in a week in which oil fell to near $50 a bar­rel, a price that four years ago would have pan­icked U.S. drillers. But since then, shale ex­plor­ers have cut costs, boosted frack­ing ef­fi­ciency and made wells last longer and pro­duce more.

“The shale in­dus­try can now thrive in a $50 oil world,” David Deck­el­baum, a New York-based an­a­lyst at Cowen & Co., said by phone. The OPEC de­ci­sion to sup­port prices over $50 in the U.S. “un­der­writes most of the in­dus­try.”

U.S. pro­duc­ers are now gen­er­at­ing 11.7 mil­lion bar­rels of oil a day, about a third more than in 2014, with al­most half the num­ber of rigs. And last week, the in­dus­try be­came a net ex­porter for the first time in 75 years.

AP/RONALD ZAK

Rus­sian En­ergy Minister Alexan­der No­vak (left) and Khalid Al-Falih, Saudi Ara­bian minister of en­ergy, in­dus­try and min­eral re­sources, dis­cuss the de­ci­sion to cut oil pro­duc­tion Fri­day in Vienna.

AP/RONALD ZAK

“This is a ma­jor step for­ward,” Suhail Mo­hamed al-Mazrouei, United Arab Emi­rates en­ergy minister and pres­i­dent of the OPEC Con­fer­ence, said Fri­day in Vienna of OPEC’s plan to cut oil pro­duc­tion by 800,000 bar­rels a day for six months.

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