Opec and allies including Russia agreed deeper than anticipated production cuts on Friday as producer nations seek to prop up crude prices in the coming months. Opec had reached a preliminary agreement on Thursday after talks went into the night, but the decision had to be rubber-stamped on Friday by the wider group of countries that have been involved in an oil alliance since 2016. The way the cuts will be distributed among members and from what starting point will be crucial to determining its effectiveness in balancing global demand and supply.
Cuts will tally around 1.7m b/d, an increase of around 500,000 b/d from a prior deal for 1.2m b/d in curbs that expires in March 2020. One delegate said Opec is expected to take on 372,000 b/d of the additional cuts that are effective from January, while countries outside the cartel will be responsible for 131,000 b/d
But Prince Abdulaziz bin Salman, the new energy minister of Saudi Arabia, said total cuts will be even higher at around 2.1m b/d once an extra voluntary cut of 400,000 b/d from the kingdom is accounted for. Helima Croft at RBC Capital Markets said: “Prince Abdulaziz was deeply concerned about the impression that this would be just a cosmetic cut and wanted to show it was real, credible and would impact the physical market”
Oil market analysts had previously questioned if an extra 500,000 b/ d alone would be enough to keep crude prices in check given producers were already making cuts well above the 1.2m b/d mark. In response to the bigger than anticipated cut, Brent crude, the international oil benchmark, rose more than 2 percent to $64.75
The market is facing still robust US shale supply as well as additional barrels from other non-Opec countries that could create a supply glut in early 2020, undermining the cuts.