Right when most analysts had considered an oil freeze deal as good as lost, OPEC member countries have reached a last-minute agreement: output will be cut by approximately 700,000 barrels per day. It’s the first such agreement in eight years, and many have pointed out that it still needs to be ratified, in all likelihood during the OPEC meeting to be held on November 30th. Output will be cut only once the agreement is officially ratified. ''OPEC made an exceptional decision today,'' stated Iranian petroleum minister Bijan Zanganeh following unofficial talks, ''after two and a half years, we have reached an agreement to regulate the market''.
Output cuts in individual countries remains to be discussed
#OPEC: first agreement on cut #oil production: 32.5 bbd at global level
The proposal offered by Algeria during the last few days and still on the table at the informal meeting called for a larger cut of 1 million barrels per day. This amount was rejected by the government of Saudi Arabia and especially Iran, which hopes to resume production at the levels of before the economic sanctions against it, over 4 million barrels per day. Riyadh had intimated on more than one occasion as to the possibility of a compromise, declaring itself willing to cut its own crude output – even drastically –, as long as Iran agrees to freeze its own output. This point remains unresolved at this juncture, along with the matter of how to distribute crude oil output cuts among individual countries. The deal reached yesterday calls for cutting global output by approximately 700,000 barrels per day, but in late November OPEC will have to decide on the more prickly issue of assigning output levels to each member country. There is a fair chance that the well-known rivalry of Riyadh and Tehran will come into play then.
The price of crude rises with the news of the deal
In light of the deal, global oil output will drop to 32.5 million barrels per day from the current 33.2 million. The repercussions are already being felt. The goal was to reduce the output surplus generated in recent years by OPEC and non-OPEC members to bring up prices, and an early sign in this direction has already emerged: as the NYSE closed last night, the price of Brent crude jumped from 47 to 49 USD, while that of WTI returned to 47 USD, recovering 2.20 dollars. In percentage points, the price went up 6% in just a few minutes.
Ahead of the November meeting
It was inevitable that some kind of agreement would be found, then, but by no means certain that one would be reached during the informal meeting in Algiers. In fact, more than one analyst – and first and foremost Algeria’s own minister of energy – had declared their satisfaction with the gathering even if it merely ''laid the groundwork'' for a later agreement. But much more progress than that was made, and perhaps it couldn’t have been otherwise. Numerous energy companies are going through a severe crisis due to shrinking revenues from crude oil, and this condition has also compromised the budgets of various oil producing countries. Russia, Algeria and Qatar appear to have exerted the most pressure on Riyadh and Tehran in order to come to a deal during the informal meeting.