Non-OPEC members agree to cut oil output by 612,000 barrels

In a move to end the era of low-priced crude oil, both Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members on Saturday, in Vienna, Austria, agreed to cut oil output.

This will be the first time since 2001 that both groups will agree on output reduction.

The decision is likely to see non-OPEC members reduce their daily output by as much as 612,000 barrels.

On November 30, OPEC members had agreed to a reduction in their daily output for the first time in eight years, by 1.2 million barrels to bring daily production to 32.5 million barrels.

Prices have rallied by 15 per cent since OPEC members took that decision.

But after OPEC members reached that decision, Saudi Arabia had said for the decision to be quite effective, non-OPEC members, especially Russia, must agree to also reduce their daily output.

Azerbaijan is to reduce its output by 35,000 barrels; Bahrain by 12,000 barrels; Bolivia by 4,000 barrels; Brunei by 7,000 barrels and Equatorial Guinea by 12,000 barrels.

Kazakhstan is to cut its daily output by 50,000 barrels; Malaysia by 35,000 barrels; Mexico by 100,000; Oman by 45,000 barrels; Russia by 300,000 barrels; Sudan by 4,000 barrels and South Sudan by 8,000 barrels.

Financial Times had quoted Jason Bordoff of the Center on Global Energy Policy at Columbia University as saying that “Securing non-OPEC’s full participation in the OPEC agreement reached in Vienna is a victory for OPEC and especially Saudi Arabia, which has long insisted the burden of cuts needed to be shared.”

The newspaper also quoted Olivier Jakob of Petromatrix that “It is very significant to have an agreement by the two powerhouses that are Russia and Saudi Arabia. A new geopolitical dynamic is being created which could be transformative for oil markets.”

While a committee has been set up to monitor producers’ cuts, that start from January 1, industry analysts have observed that it had been difficult in the past for either OPEC members or Russia to stick to their side of the bargain.

According to Abhishek Deshpande of Natixis, “There is limited doubt, even if there was limited compliance, that their action should help balance markets earlier in 2017 than was otherwise expected.”

Since mid-2014, the price of crude has been on a downward slide principally because of excess supply and the advent of shale oil. This has put many oil producing countries such as Nigeria and Venezuela in a dire strait.

If the output cut agreement is kept by both parties it would speed up the end of the worst oil downturn in a generation by mopping up excess supplies and boost prices, providing some relief to resource-rich nations whose economies have taken a big hit.