The Organisation of Petroleum Exporting Countries (OPEC) met on 30th November to discuss implementing an output freeze or cut to oil production in an attempt to reduce the global oversupply in the current market. Reducing the glut will push oil prices up, which is the end aim for most countries involved in the Organisation. Prior to the September OPEC meeting, the price of oil was reaching lows of $42/bbl, and as a result this has pushed members of the organisation to raise this towards $70/bbl after this month’s meeting, by arranging a deal.
Prior to yesterday’s gatherings, OPEC estimated that global oil production was reaching 33.64 million barrels per day. For two months OPEC members were unable to agree on a production cutback, or to freeze at the current level. With many reports suggesting that a freeze at the record high levels we’re seeing today would not have any impact on the current market price, it was finally agreed that a cut of 1.2 million barrels per day would be implemented, and spread across OPEC countries, with the exception of Iran, who were the only country allowed to raise production, to recover from pre-sanctions. This was not expected to go down well, however despite this, a cut of 1.2 million barrels per day has definitely been agreed, and will take effect. Overall, Saudi Arabia will be taking to bulk of the cut at a reduction of 500,000 barrels per day, and Iran following behind at a 200,000 barrel cut per day.
Additionally, the deal has allowed for a cut of 600,000 barrels for non-OPEC countries. Russia have been very much involved in the debate, and have suggested that as long as others take part in the reduction, they would follow suit. OPEC members seem to be confident that other countries will get involved, though Russian Energy Minister Alexander Novak had clearly stated yesterday that Russia would:
This essentially means that another 300,000 barrel cut will need to be spread across other willing non-OPEC countries, though only Kazakhstan and Azerbaijan have registered interest just yet, with no formal announcements or commitments made. This is causing much debate today, as without the participation from other major oil producers, it is unlikely that Russia will follow through with the deal. Furthermore, if OPEC countries cut production and other non-OPEC countries do not, all of their efforts to balance and reduce the oversupply are rendered futile, and everything is likely to become uncertain again as to whether the cutback in production are feasible.
Others have pointed out the disadvantages of the deal made yesterday, such as how in the past OPEC members have deviated from their respective cut guidelines, and instead breaching them by increasing production. This gives little faith that countries will keep to their required reductions, especially as Saudi Arabia expressed concerns that they were taking on the majority of the cut.
With all of this in mind, the price of oil increased yesterday, and breached the $50/bbl mark as discussions were ongoing, and finally settled at around $52/bbl. Members of OPEC were unhappy with this outcome, especially since we saw higher prices in October, when oil was trading at over $53/bbl. The uncertainty over whether the deal will come into fruition is affecting the price today, though as cuts have only just been agreed, oil prices are expected to rise above $55/bbl in 2017.
Sources: Reuters, OPEC, the Telegraph, the Guardian, Npower, EDF, SSE, Energy Live News, BBC News