Published: Thu, December 13, 2018
Money | By Arnold Ball

Opec agrees 1.2m bpd oil output cut

Opec agrees 1.2m bpd oil output cut

OPEC and its partners, which together account for about half of global output, say a glut in the market has led to oil prices falling by more than 30 percent in two months.

The surge of USA oil production, which has increased by 2.5 million bpd since early 2016 to 11.7 million bpd, has given OPEC and other oil pumpers more pressure in global market competition.

"The OPEC+ cut is fuzzy on details and will likely result in less reduction than the headline figure of 1.2 million bpd", said Bob McNally, president of USA -based Rapidan Energy Group.

Iran, Saudi Arabia's geopolitical rival and OPEC's third-largest producer, has suggested it is in favour of deeper cuts - while asking to be exempted from them because of the effects of United States sanctions targeting its oil sector. However, with prices below $45/bbl in many onshore USA producing basins, a deceleration in US production growth should help achieve this ultimate goal. The country had initially pitched for a 100,000 to 150,000-barrel-a-day cut, but subsequently indicated it might agree to a slightly larger reduction, a delegate said earlier. Implied volatility for second-month West Texas Intermediate futures hit a 2016-high late last month before slowly creeping lower. First because apparently Russian Federation was expecting the Saudis to shoulder all the cuts alone in exchange for their support, and secondly Iran, whose crude exports have been depleted by USA sanctions, objected to bear any cuts.

On Twitter Wednesday, Trump urged OPEC not to restrict oil flows, but since then has not publicly addressed the market.

OPEC Kingpin Saudi Arabia, meanwhile, has to bear in mind pressure from the United States after President Donald Trump demanded in a tweet on Wednesday that the cartel boost output so as to lower prices and help the economy.

With the development, implementation of Nigeria's 2018 budget, benchmarked at $51 per barrel and daily production of about 2.2 million barrel could become elusive, the experts said. "Opec has basically said, we've got you, we're going to take down production". Between late October and late November, Brent crude fell by nearly 30 percent, from about $80 a barrel to less than $60, where it remains. "That is acceptable for most OPEC countries".

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Trump was claiming to cut Iranian oil exports to zero and his best buddy bin Salman was Trump's main chess piece to succeed in his game against Iran.

"The commitments made under this proactive collaboration between participating countries are to be voluntarily implemented, non-binding and would not in any way affect the rights of peoples and nations to permanent sovereignty over the exploitation and management of their natural resources", he said. OPEC will cut 0.8 million barrels per day from January with additional contributions of 0.4 million barrels per day of cuts, Iraqi Oil Minister Thamer Ghadhban said.

But Bob McNally, president of USA -based Rapidan Energy Group, said the details of the cut were "fuzzy" and would likely result in a lesser reduction than the headline figure.

OPEC's de facto leader Saudi Arabia, under economic pressure after a collapse in oil prices last month, has sought to walk a fine line between preventing a surplus next year and appeasing Trump.

The Saudi oil minister refrained from answering a question on whether the OPEC decision might prompt Washington to withdraw support, but said Saudi-U.S. relations were based on shared values. Just this year, the USA has taken over as the world's largest producer of oil.

A reduction of 1 million bpd would be acceptable and so far was the main scenario, Falih said, but he added that Russian Federation needed to commit significant volumes.

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