OPEC cuts oil out­put; prices jump

In re­buke to Trump, Rus­sia and Saudi Ara­bia lead push to slash pro­duc­tion.

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Saudi Ara­bia, Rus­sia and the rest of the OPEC+ coali­tion de­liv­ered a big­ger-thanex­pected oil pro­duc­tion cut, send­ing prices soar­ing and de­fy­ing Pres­i­dent Trump’s calls for the car­tel to keep the taps open.

Af­ter a frac­tious two-day meet­ing in Vienna, the group — which does not in­clude the United States — agreed Fri­day to re­move 1.2 mil­lion bar­rels a day from the oil mar­ket in the first quar­ter of 2019. That’s more than 1% of global pro­duc­tion. The goal is to drive up prices.

Their de­ci­sion will af­fect ev­ery­thing from the share prices of Texas shale pro­duc­ers, which surged af­ter the meet­ing, to in­fla­tion rates in In­dia, China and other con­sum­ing coun­tries.

The po­lit­i­cal im­pli­ca­tions are also pro­found: The deal is a tes­ta­ment to the strength of Saudi Ara­bia’s two-year-long co­op­er­a­tion with Rus­sia, a coun­try that played a cru­cial role in bro­ker­ing the pact. And it showed that Crown Prince Mo­hammed bin Sal­man is will­ing to defy Trump’s wishes.

Saudi Oil Minister Khalid Falih went out of his way to show that his coun­try is se­ri­ous about keep­ing the oil mar­ket un­der control. Be­cause Saudi Ara­bia pro­duced sig­nif­i­cantly more than its OPEC com­mit­ments in Novem­ber, it will cut pro­duc­tion by 900,000 bar­rels a day by Jan­uary to 10.2 mil­lion bar­rels a day, a dra­matic swing very few an­a­lysts saw com­ing.

The Saudi out­put swing is equiv­a­lent to re­mov­ing all the oil pro­duc­tion of Libya in just eight weeks.

“This will be strongly felt in the spot oil mar­ket,” said SEB’s chief com­modi­ties an­a­lyst, Bjarne Schiel­d­rop. “We are go­ing up to $70.”

U.S. benchmark crude rose 2.2% to $52.61 a bar­rel Fri­day. Brent crude, used to price in­ter­na­tional oils, climbed 2.7% to $61.67 a bar­rel.

As in many other OPEC deals, a com­pro­mise was needed. Iran in­sisted on be­ing ex­empted from the cuts be­cause it is sub­ject to U.S. sanc­tions. Venezuela and Libya were also ex­empted.

Be­fore the meet­ing, many OPEC watch­ers had pre­dicted a max­i­mum cut of 1 mil­lion bar­rels a day. Oth­ers fret­ted Saudi Ara­bia would balk at any deal for fear of of­fend­ing the White House. Falih warned af­ter the first day of talks that he wasn’t con­fi­dent of get­ting a deal.

The break­through fol­lowed a se­ries of bi­lat­eral meet­ings con­vened by Rus­sia, which bro­kered the com­pro­mise be­tween archri­vals Saudi Ara­bia and Iran — a me­di­a­tor role that showed the Krem­lin’s grow­ing in­flu­ence in­side the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries, which was un­think­able only two years ago.

“Given how much ex­pec­ta­tions were down­played around the out­come of this meet­ing, this re­sult comes as a wel­come sur­prise,” said Harry Tchilin­guirian, head of com­mod­ity-mar­kets strat­egy at BNP Paribas. “OPEC has given the oil mar­ket a rud­der that ap­peared largely ab­sent yesterday.”

Al­though the group won’t pub­lish in­di­vid­ual quo­tas, this is how the deal will work: Pro­duc­ers will use Oc­to­ber out­put lev­els as a base­line for cuts, and the agree­ment will be re­viewed in April, when min­is­ters meet again in Vienna. On av­er­age, that means a cut of 3% for OPEC coun­tries that aren’t ex­empted.

Rus­sia pro­posed its own con­tri­bu­tion would be equiv­a­lent to a 2% cut, ac­cord­ing to one del­e­gate. Such a cut would equate to 228,000 bar­rels a day, No­vak said, higher than its ini­tially pitched cut of at most 150,000 bar­rels a day.

“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 said of the OPEC+ coali­tion.

Much has changed for OPEC since 2016, when Rus­sia and Saudi Ara­bia ended their his­toric an­i­mos­ity and started to man­age the mar­ket to­gether. The al­liance has trans­formed the car­tel into a du­op­oly in which the Krem­lin is assert­ing its power.

“OPEC, or more pre­cisely Saudi Ara­bia, has been the head hon­cho of the oil world for nearly six decades; yet these days it seems un­able to make a de­ci­sion with­out Rus­sia’s bless­ing, let alone with­out risk­ing the wrath of the U.S. pres­i­dent,” said Stephen Bren­nock, an an­a­lyst at PVM Oil As­so­ciates in Lon­don.

Joe Kla­mar AFP/Getty Im­ages

OPEC oil min­is­ters, meet­ing in Vienna, agreed to re­move 1.2 mil­lion bar­rels a day from the oil mar­ket in the first quar­ter of 2019.

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