Vienna — OPEC and its allies led by Russia agreed Friday after a tension-filled week to implement 1.2 million b/d of production cuts from January 2019 to shore up flagging oil prices and prevent a supply surplus building.
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The result no doubt came as a relief to Saudi Arabia, which had strongly pushed the cuts, but saw several OPEC members -- notably geopolitical rival Iran -- seek exemptions that threatened to undermine the deal. Even close ally Russia put the squeeze on Saudi Arabia to bear more of the cuts.
In the end, the kingdom relented on exemptions for Iran, Libya and Venezuela. OPEC would cut 800,000 b/d under the deal, or 2.5% of production for each member, with the 10 non-OPEC partners slashing 400,000 b/d, or 2%.
The cuts -- using October as the baseline level, except for Kuwait, which will use September, as its production was impacted by bad weather in October -- will last for six months, through the end of June. The 24-country OPEC/non-OPEC coalition will meet in Vienna again in April to assess progress amid concern over the health of the global economy and the impact of trade wars on demand.
"During a year when the global economy is facing lot of headwinds, it is not inconsequential what we have done," Saudi energy minister Khalid al-Falih said at a press conference after the announcement. "We try to keep the market within reasonable band for consumers."
Falih said Saudi Arabia's production would fall to 10.2 million b/d in January, down from 10.7 million b/d expected in December as it makes the deepest reductions as part of the agreement.
Russia will reach its cut commitment gradually, over the course of a few months due to freezing winter and technical conditions, said energy minister Alexander Novak. He added that October output was 11.40 million b/d, so the agreed 2% cut the Kremlin has signed up to will be 228,000 b/d.
HELPING ALL PRODUCERS
OPEC and its allies have been forced into action by a slump in crude prices since October when Brent was trading at $86/b. The benchmark fell below $60/b this week before rebounding following the decision Friday.
Harry Tchilinguirian, head of global commodities markets strategy for BNP Paribas, said the 1.2 million b/d cut was within market expectations.
"If fully and promptly implemented, it should help attenuate, but not entirely eliminate, implied global stock builds in H1 2019," he said. "The decision should, however, help to steady oil prices after their freefall in October-November as well as provide the basis for a recovery into Q1 2019."
The decision to cut could prove awkward for Saudi Arabia, after US President Donald Trump again urged the kingdom to keep output flowing. Trump has repeatedly accused OPEC of anti-competitive practices since coming to office.
But Falih defended the decision, saying that it would support prices that would benefit US oil producers.
"I am estimating oil and gas producers in the US are breathing a sigh of relief that we are providing some certainty and visibility for 2019 so they can approve their budgets," he said.
Getting to a decision was a struggle.
Saudi Arabia and Iran were at loggerheads for much of the talks, over Tehran's insistence that it be left out of any output cuts that Riyadh said were badly needed.
Sources, who asked not to be named because of the sensitivity of the discussions, said the exemptions were the largest sticking point in the negotiations.
One delegate said it was "the toughest meeting" he had experienced.
Falih said Friday morning that he was not confident a deal could be reached. But Novak's arrival on Friday helped paved the way for a detente, and the group eventually walked away with a deal that everybody could claim victory on.
"It was truly an extended negotiation because there were different points of view," Falih said. "Considering the complexity and number of variables, I'm happy we finished Friday and we can all go and enjoy the weekend."
--Edited by Maurice Geller, email@example.com