Oil prices surge as OPEC agrees joint 1.2 mn bpd cut with partners

Vienna, Austria | AFP | OPEC members and 10 other oil producing nations, including Russia, agreed Friday to cut output by 1.2 million barrels a day in a bid to reverse falls in prices in recent months.

Energy ministers reached the deal — which takes effect from January 1 but has already sent prices surging on oil markets — after two days of talks at OPEC headquarters in Vienna.

“OPEC group countries are contributing 800,000 barrels per day as a cut, and the non-OPEC (countries) will be contributing 400,000 barrels per day,” Emirati Oil Minister Suhail Mohamed al-Mazrouei said at a news conference.

OPEC and its partners, which together account for around half of global output, met against the backdrop of a glut in the market which had led to oil prices falling by more than 30 percent in two months.

Mazrouei said that three countries had been allowed exemptions from the agreement due to “special circumstances”.

“Those countries are Iran and Venezuela because of the sanctions and Libya because of the fact that unfortunately they are on and off,” he added, alluding to the impact on Libyan production of continuing conflict there.

Mazrouei said that the exemptions mean that the cuts introduced by other member states are “going to be a bit higher than just the average for everyone”.

For his part Russian Energy Minister Alexander Novak — whose country is the world’s second biggest producer of oil — said that the agreement “should help the market reach a balance” and recognised that negotiations had been “complex”.

– Not enough? –

The price of Brent crude, the European benchmark, surged 4.43 percent on Friday to $62.7 as of 17:15 GMT.

But some said Friday’s deal may not be enough to keep oil prices buoyant.

“I would describe the cuts as close but not close enough with regards to eliminating the global oil glut,” said Stephen Brennock, oil expert at London brokerage PVM.

“A combined reduction of 1.5 mbpd was needed to avoid a supply surplus in the first half of next year,” he told AFP.

“Accordingly, the price outlook for the coming few months still remains skewed to the downside despite today’s knee-jerk reaction.”

The deal was announced after Novak held bilateral meetings with several counterparts, including Iranian Energy Minister Bijan Namdar Zanganeh, before the full meeting.

However, the major players all had their own reasons to look to others to act first and the details of how any cuts will be shared out will be key.

Novak said that Russia, which leads the non-member countries in the so-called OPEC+ alliance, would introduce cuts “gradually” to allow for “climatic and technical conditions” but aimed to reach the cuts target “in the next few months.

OPEC kingpin Saudi Arabia, meanwhile, had to bear in mind pressure from the United States after President Donald Trump demanded in a tweet on Wednesday that the cartel boost output so as to lower prices and help the economy.

The kingdom’s diplomatic position has been badly weakened by the furore over the killing of Saudi journalist Jamal Khashoggi.

Trump insists he will stick by Riyadh despite the outrage but he has been also ramping up the pressure for more oil.

However, at Friday’s press conference Saudi Energy Minister Khalid Al-Falih sought to play down Trump’s influence on the decision, saying: “Over 2018 I have met with consumers in Asia more often than I have read tweets coming out of the White House.”

India had also asked for action to bring down high oil prices, he said.

In addition, while admitting that “many consumers are suffering from the high cost of energy”, Falih said: “I take the opportunity to plead with consumer nations to take it easy on their own people with taxation,” claiming that this was the main driver of prices at the pump.

In June, OPEC and its partners agreed to allow for a boost in production by Saudi Arabia and Russia to compensate for the expected losses in output from Iran after the US dramatically withdrew from the Iran nuclear deal in May and decided to re-impose tough sanctions.

However, the US then granted temporary waivers to eight countries, including crucially China, to allow them to carry on importing Iranian oil, contributing to a plunge in oil prices which wiped out the gains seen since early 2017.