Members of the Organization of Petroleum Exporting Countries (Opec) on 7 December reached a deal with 11 other producers, led by Russia, to collectively reduce oil production by 1.2 million barrels a day (b/d) starting from 1 January in a bid to boost crude prices.
The agreement came at Opec’s scheduled meeting at its headquarters in Vienna, following intense bargaining and negotiations guided by geopolitical and commercial considerations.
As per the deal mandated to be in force throughout the first half of 2019, the 15-member Opec group will bring down its output by 800,000 b/d, while the group of 11 other oil producers will cut output by 400,000 b/d.
The deal is in line with expectations for the Opec+ alliance to curb total output by 1 million to 1.4 million b/d.
The alliance did not release specific quotas for individual countries, but Saudi Arabia said it would bear the bulk of the agreed production cuts on the Opec group’s part.
The kingdom’s production hit an all-time high at 11.1 million b/d in November, said Saudi Energy Minister Khalid al-Falih. That will likely fall to 10.7 million b/d in December and 10.2 million b/d in January, he said.
Qatar deciding to relinquish its Opec membership implies it is not bound to comply with the production cut deal.
On the non-Opec side, Russia will reduce production by 2 per cent from October’s output of 11.4 million b/d, equaling about 228,000-230,000 b/d, Russian Energy Minister Alexander Novak said. However, Novak warned that Russia would reduce supply gradually due to conditions that affect its oil fields during the winter.
The Opec+ meeting came at a time when the oil market has witnessed a sharp decline in crude prices, with global benchmark Brent crude plunging around 30 per cent over the last two months, making it near imperative for oil producers to rein in on supply to push up prices.
Following the announcement of the deal on 7 December, Brent crude prices rose above $63 a barrel temporarily, only to settle down around $61 later.
Reaching an agreement in Vienna seemed challenging, amid Saudi Arabia refusing to agree to a deal exemption for US sanctions-hit Iran.
Ultimately, Opec agreed to exempt Iran, along with Venezuela and Libya. Nigeria, which was exempt under the previous deal, will participate in this round of cuts.
The exemptions mean the remaining members will cut production by about 2.5 per cent from October levels, said Opec president and UAE Energy Minister Suhail Mohamed Al Mazrouei.
Opec rescheduled its mid-year 2019 meeting to April in order to be able to take stock of market conditions and adjust its policy if necessary.
Opec began restraining supply in partnership with Russia and several other nations in January 2017 in order to end a downturn in oil prices.
Amid prices staying robust in the first half of this year, the alliance reversed course and agreed to hike output in June after it removed more barrels from the market than it intended, largely due to the fall in Venezuelan output and supply disruptions in Libya.
At its September meeting in Algeria, the syndicate and its friends ruled out raising output in the short-term, in the wake of oil prices breaching the $80 a barrel mark.
This article is sourced from Offshore Technology sister publication www.meed.com, a leading source of high-value business intelligence and economic analysis about the Middle East and North Africa. To access more MEED content register for the 30-day Free Guest User Programme.