OPEC SLASHES OIL PRODUCTION BY 1.7 MIL. BARRELS A DAY
The latest Opec+ meeting saw Saudi Arabia spearhead a deal that will lead to some of the industry’s biggest output cuts in a decade, as it tries to prevent a glut and subsequent price hit.
The ‘Deceleration of Cooperation’ comes ahead of next year’s expected increases in production from countries, notably the US. As Amrita Sen, co-founder of Energy Aspects diplomatically put it: “The Saudi goal was not necessarily to push oil process significantly higher but rather…to put a firm floor under them during the first quarter to temper any seasonal weakness.”
The agreement prior to the meeting was that next year the target would be a cut of 1.2m bpd – but have been revised to 1.7m. The majority will be taken by OPEC, and include the Kingdom cutting 400,000 bpd more than its quota. Russia and the allies will take up the remainder.
The trend of output reductions has been in play since 2016. Manuel Salvador Quevedo Fernández, the president of Opec and Venezuela’s oil minister, said the market was in a “perilous condition” in 2016 and remained at risk: “We have been on a long and eventful journey since those dark days. However, we continue to face various challenges and critical uncertainties that are beyond the capacity of any one stakeholder to influence. There have been trade-related issues, geopolitics and disruptions to security of supply.”
There was a swift reaction from the markets with oil moving from $62.80 pb on Friday morning to more than $64.50 pb about an hour later. To put that into perspective, this time last year oil prices were in the region of $50.57 pb but in April 2019 they had reached the dizzy highs of $74.94.
The Saudi energy minister Prince Abdulaziz bin Salman told delegates in Vienna that the oil cartel is “like a religion”. He said: “If you are a believer you have to practice. Without practice you are an unbeliever. I do not assume that anyone here in this room is an unbeliever, but I would reiterate to our friends that further commitment and further conformity would allow us all the benefit.”
He added: “The market will have to trust us.”
Read more here.