OPEC agrees to curtail oil production. For the first time in the last eight years, the 14 country OPEC agrees to cut oil production to end the global glut. Already rising due to hopes for cut prior to meeting, brent oil prices hit above $50 …why after 8 years of low oil prices? by Dr. Theodore Theodoropoulos.
OPEC has agreed its first limit on oil output since 2008 after Saudi Arabia said it was prepared to accept “a big hit” on production and agree to arch-rival Iran freezing output at pre-sanctions levels. Brent crude futures jumped 8 percent to more than $50 a barrel on hopes. Riyadh had finally reached a compromise with Iran after insisting in recent weeks that Tehran fully participate in any cut. The Organization of the Petroleum Exporting Countries agreed a deal in line with an accord the group reached in Algiers in September. OPEC member Algeria was proposing to set a new production cap at 32.5 million barrels per day, down from current levels of 33.6 million.
Before the meeting, Saudi Energy Minister Khalid al-Falih said OPEC was indeed focusing on reducing output to a ceiling of 32.5 million bpd (barrels per day) and hoped Russia and other non-OPEC producers would contribute a cut of another 0.6 million bpd. “It will mean that we (Saudi) take a big cut and a big hit from our current production and from our forecast for 2017. So we will not do it unless we make sure that there is a consensus and an agreement to meet all of the principles,” Falih said. But he added that even if OPEC failed to reach a deal, the market would slowly recover: “We believe that non-OPEC growth has reversed and also most of the OPEC growth we’ve seen is already behind us,” he told reporters. “If we can’t come to an agreement, then the other scenario of rolling over and waiting for the market to recover on its own is not a bad outcome.” Clashes between Saudi Arabia and Iran have dominated many previous OPEC meetings.
On Tuesday, Iran wrote to OPEC saying it wanted Saudi Arabia to cut production by as much as 1 million bpd, more than Riyadh was willing to offer. But the tone changed on Wednesday. “I’m optimistic,” Iranian Oil Minister Bijan Zanganeh said before the meeting, adding there had been no request for Iran to cut output. He also said Russia was ready to reduce production. “Moscow have agreed to reduce their production and cut after our decision,” Zanganeh said.
The 14-country OPEC, which accounts for a third of global oil production, made a preliminary agreement in Algiers in September to cap output to prop up oil prices, which have halved since mid-2014. OPEC said it would exempt Iran, Libya and Nigeria from cuts as their output has been crimped by unrest and sanctions. The September deal was seen as a victory for Iran. Tehran has long argued it wants to raise production to regain market share lost under Western sanctions, when Saudi Arabia increased output. In recent weeks, Riyadh changed its stance and offered to cut its output by 0.5 million bpd, according to OPEC sources, while suggesting Iran limit production at around 3.8 million bpd – in line with or slightly above the country’s current output.
Tehran has sent mixed signals, saying it wanted to produce as much as 4.2 million bpd. Iran’s letter to OPEC suggested Saudi Arabia should cut output to 9.5 million bpd. Sources said that out of additional non-OPEC cuts of 0.6 million bpd, OPEC expected Russia to cut by 0.4 million. A Russian ministry source said the figure was “a bit excessive.”
OPEC member Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State. Iran and Iraq together produce over 8 million bpd, only slightly behind long-time leader Saudi with 10.5 million bpd. The argument between Iraq and Saudi Arabia mainly focuses on whether Baghdad should use its own output estimates to limit production or rely on lower figures from OPEC’s experts.
Oil prices surge after Saudi Arabia and other producers agree to cut output. Non-OPEC countries including Mexico have now pledged to cut production
Oil prices jumped to their highest since July 2015 after Saudi Arabia signaled it’s ready to cut output more than earlier agreed while non-OPEC countries including Russia pledged to pump less next year, strengthening the coordinated commitment by the world’s largest producers to tighten supply. Futures rose as much as 5.8 per cent in New York and 6.6 per cent in London. Saudi Energy Minister Khalid Al-Falih said Saturday the biggest crude exporter will “cut substantially to be below” the target agreed last month with members of OPEC. Al-Falih’s comments followed a deal by eleven non-OPEC countries including Mexico to join forces with the group and trim output by 558,000 barrels a day next year, the first pact between the rivals in 15 years.
Oil in New York has gained about 20 per cent since the Organization of Petroleum Exporting Countries announced on 30 November that it will cut output for the first time in eight years. Saudi Arabia, which led OPEC’s decision in 2014 to pump at will, is leading efforts to take back control of the market. The OPEC and non-OPEC plan encompasses countries that pump 60 per cent of the world’s crude, but excludes major producers such as the US, China, Canada and Brazil. “This is a very powerful message that producers want to balance the market,” said Chris Weston, chief market strategist at IG. “As a statement of intent, this is about as bullish as it gets.”
West Texas Intermediate for January delivery rose as much as $3.01 to $54.51 a barrel on the New York Mercantile Exchange, the highest intraday level since July 6, 2015. The contract was trading at $54.19 at 7:50 a.m. in London. Prices gained 3.5 per cent over the previous two sessions to close at $51.50 a barrel on Friday. Brent for February settlement jumped as much as $3.56 to $57.89 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $1.81 premium to February WTI.
“Assuming reasonable compliance levels, these cuts will be enough to push the market into deficit,” Neil Beveridge, a senior analyst at Sanford C. Bernstein in Hong Kong, said by e-mail. “This level of coordination is unprecedented.” Oil and gas companies gained in Asia, with the MSCI AC Asia Pacific Energy sub-index rising 0.5 per cent, compared with a 0.6 per cent drop in the broader gauge. Chinese producer PetroChina added 0.7 per cent, while Australia’s Santos added 5.1 per cent and India’s Oil & Natural Gas rose 1.8 per cent.
“I can tell you with absolute certainty that effective 1 January we’re going to cut and cut substantially to be below the level that we have committed to on 30 November,” Al-Falih said Saturday in Vienna. The Saudi minister added that the country was ready to cut below 10 million barrels a day, a level it has sustained since March 2015. Al-Falih and his Russian counterpart Alexander Novak also revealed Saturday they have been working for nearly a year on the agreement, meeting multiple times in secret. OPEC two weeks ago agreed to reduce its own production by 1.2 million barrels a day, and Saudi Arabia has long insisted that any cuts by the group be accompanied by action from other suppliers.
Sources: QGN, Dr. Theodore Theodoropoulos ”Global Energy Report 2015-2016”, Dr. Theodore Theodoropoulos ”The Secret World of Energy” ed. 2011, Bloomberg, CNN, BBC, Gulf Times.