OPEC, non-OPEC to raise production-cuts

Organization of Petroleum Exporting Countries (OPEC) and non-OPEC members, who have been maintaining sustained oil production cuts since 2017, agreed during their meeting last week to cut crude production further by an extra half-a-million barrels a day to maintain what the organization said was “a balance between demand and supply.”

Russian energy minister Alexander Novak announced the decision on Friday at a news conference held at OPEC headquarters in Vienna, after lengthy discussions. The additional production cuts will come into force in January and be upheld throughout the first-quarter of the year, said the Russian minister.

The existing production cut agreement that is due to expire in March 2020 removes 1.2 million barrels per day from world markets. Faced with a supply glut in the market, largely from continued production of shale oil and gas in the United States, and declining demand on global trade worries, OPEC and its allies have struggled to maintain prices at the levels they believe are optimum for producers and consumers.

Friday’s meeting in Vienna dragged on longer than expected as the parties reportedly could not initially agree on how to share the production cuts among the OPEC and non-OPEC members. Since the launch of production cuts two years ago, Saudi Arabia has been bearing more than its share of cuts to production so as to ensure the target of 1.2 million barrels per day is met, as some countries have been accused of producing more than their assigned quota.

As part of the new agreement, it is understood that OPEC members will shoulder 340,000 barrels per day of extra cuts, with other producers contribute to removing the remaining 160,000 from the market. But oil market analysts questioned whether an extra 500,000 barrels a day would be enough to support crude prices, given that producers were already cutting more than the mandated 1.2 million barrels per day and yet prices had not rallied as expected.

Moreover, even if OPEC and its allies maintain production cuts at 1.7 million barrels a day, more oil continues to come into the market from non-OPEC nations, including Brazil, Canada,  Guyana, Norway and the United States. The extra supply could compensate for production cuts, and there is also the fear that cartel members and its allies may be reluctant to prolonged production cuts that are reducing their share in global markets.