Oil producers led by Saudi Arabia and Russia agreed to cut output by an extra 500,000 barrels a day in the first quarter of 2020 but stopped short of pledging action beyond March, Reuters reports.
The countries involved pump over 40 percent of the world’s oil, and their new combined cuts amount to 1.7 million barrels per day or 1.7 percent of global production.
A panel of energy ministers representing the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers led by Russia recommended the deeper cut on Thursday, Russian Energy Minister Alexander Novak said.
“We really do see some risks of oversupply in the first quarter due to lower seasonal demand for refined products and for crude oil,” Novak said.
Details of the agreement and how the cuts will be distributed among producers still need to be ratified at a meeting in Vienna of OPEC and non-OPEC nations on Friday.
Some OPEC ministers, concerned that a slowing economy could hurt demand, had called for a deal that would last until June or December 2020. At their last meeting in July, OPEC and partners agreed to an extension of nine months.
The latest deal represents a compromise between de facto OPEC leader Saudi Arabia and Russia, the world’s top oil exporters. Sources have told Reuters Moscow was reluctant to deepen cuts while Riyadh wanted them deeper and longer.
Saudi Arabia needs higher oil prices to support its budget and the initial public offering (IPO) of state oil firm Saudi Aramco, which is expected to begin trading this month.
On Thursday, the IPO was priced at the top of its price range, raising US$25.6 billion and making it the world’s biggest IPO.
Russia and Saudi Arabia have led OPEC+ agreements to voluntary reduce supply since 2017 to counter booming output from the shale fields of the United States, which has become the world’s biggest producer and is not taking part in cuts.
Producers face another year of rising output from the United States along with other non-OPEC producers Brazil and Norway.
Another complication for OPEC as it attempts to measure what it should pump this year is that two members, Iran and Venezuela, are under US sanctions that have severely constrained their ability to export.
Iran, Libya and Venezuela are exempt from cutting output while OPEC’s other 11 members are participating.
Novak said on Thursday OPEC+ producers would meet again in March to decide policy, when factors could include the run-up to November’s US presidential election.
OPEC’s cuts have supported oil prices at around US$50-US$75 per barrel over the past year. Brent crude futures on Thursday extended this week’s gains to trade above US$63 per barrel.
The deal agreed on Thursday “should ensure a US$60-US$65 Brent oil price in the seasonally weak period of next year”, said Gary Ross, founder of Black Gold Investors.
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