On the 10th December OPEC and non-OPEC countries met in Vienna to discuss the recent deal on oil production cuts made by most members of the Organisation of Petroleum Exporting Countries at the end of November. Overall, OPEC are aiming to cut production by 1.2 million barrels per day. The agreement ended in Saudi Arabia taking the bulk of the cut, and other OPEC countries following suit, with the addition of Russia as a non-OPEC country who agreed to cut production by 300,000 barrels per day. However it was made very clear that Russia would only participate as long as other non OPEC, major oil producers would also take part in reducing the saturated market.
Many countries attended the meeting this weekend including representatives from Azerbaijan, Oman, Mexico, Sudan, South Sudan, Bahrain, Malaysia, Equatorial Guinea, Kazakhstan, and Bolivia, all with similar interests to cut production in order to increase the price of oil after two years of low prices. In early 2016 oil prices dropped below $30/bbl, which is relevant to the new agreements and deals that are being put into place now. Between 2013 and 2015, oil prices did not fall below $60/bbl, and so OPEC and non-OPEC countries have established the aim to bring the price of oil up towards this mark once again in an attempt to avoid any dramatic reductions in prices in the future.
During discussions, some countries debated over whether they should comply with the cuts due to the fact that Iran as a member of OPEC has been exempted from the agreement. Therefore it was decided that both Nigeria and Libya would also be exempt due to civil unrest in both countries.
Additionally, others were concerned that ‘natural cuts’ in each of their countries should be counted within the cuts that OPEC members suggested, especially Mexico, however others doubt that the figures were accurate, and rejected the notions that natural cuts should be taken into account.
In the end, Oman and Kazakhstan agreed to production cuts, bringing the end figure of 558,000 barrels, (including Russia who previously agreed to cut 300,000 barrels). OPEC were hoping for non OPEC countries to make up a 600,000 barrel cut but this did not happen.
Oil prices have increased over December, reaching ~$57/bbl increasing in the direction that OPEC were hoping for, however many doubt that OPEC will keep to cuts that have been agreed, and many distrust that Russia will keep to their agreed cut given their previous performances in production freezes and cuts. Furthermore, Kazakhstan have recently opened a new oil field, which reduces faith in the idea that they too will keep to their agreed cuts. Many have suggested that Kazakhstan would most likely only freeze production at current levels.
OPEC and non-OPEC countries will be meeting in May to monitor production and reductions in oil.
Sources: Reuters, Bloomberg, BBC News UK, Npower (RWE), SSE, Gazprom, Engie, the Guardia