OPEC, Russia and nine other allies delivered a new production cut deal Friday, just hours after it appeared their pact was close to unravelling.
Oil prices rallied on the announcement the OPEC+ group will deepen collective output cuts by 503,000 b/d to 1.7 million b/d from January through March. At 1707 GMT, NYMEX front-month crude was trading 63 cents higher at $59.57/b, while ICE front-month Brent was trading around $64.20/b, up 81 cents.
“We have analyzed in depth scenarios and options and have come to a conclusion that to balance the market, 500,000 b/d of additional cuts would be needed,” Russian energy minister Alexander Novak said.
OPEC’s kingpin Saudi Arabia took it even further, declaring it would voluntarily slash another 400,000 b/d of production beyond its new quota, bringing the group’s total supply curbs to 2.1 million b/d. The coalition will meet again March 5-6 in Vienna to assess the impact of the new deal and decide whether to renew them beyond their end-March expiry.
“We already believed market fundamentals warrant $66/b Brent in January, even assuming the existing agreement simply rolled over through end-2020,” said S&P Global Platts Analytics following the decision. “Needless to say, a lower supply forecast provides more support.”
However, the market still looks challenging for OPEC in the months ahead. The coalition’s inability to agree on extending the deeper cuts beyond March sets the stage for another potentially tough meeting three months from now. The deal calls for the OPEC to shoulder 372,000 b/d in new cuts, with the non-OPEC partners taking on 131,000 b/d.
Saudi Arabia’s new quota is 10.145 million b/d, but the kingdom plans to produce at a maximum of 9.744 million b/d, energy minister Prince Abdulaziz bin Salman said.
Russia agreed to expand its 228,000 b/d in cuts by an additional 70,000 b/d for a total of about 300,000 b/d. Its quota will be 10.328 million b/d, based on figures Novak provided, with its condensate production is now exempted from its cap – a significant concession granted to all of the non-OPEC participants.