OPEC agrees to cut oil production

Oil prices soared by more than five percent on Friday following news that the oil cartel OPEC and its allies have agreed to cut global production levels in 2019, directly defying a call from US President Donald Trump to keep production levels high.

Delegates from OPEC (Organization of the Petroleum Exporting Countries), which comprises 14 oil-producing nations (13, once Qatar leaves in January), mostly from Africa and the Middle East, met in Vienna from Wednesday to Friday to discuss global oil production and ongoing issues around the falling value of the commodity.

Delegates at the meeting said the cut agreed would amount to the removal of 1.2 milion barrels per day from the market. The benchmark Brent crude rose by 5 percent to more than $63 (€55) per barrel on the news, while U.S. light crude rose $2.62 to a high of $54.11 a barrel.

The deal agreed on Friday looked far from certain on Thursday, when oil prices fell sharply due to uncertainty over the strength of whatever final deal was agreed to tackle the continuing problem of falling prices in the face of a production glut.

Saudi Arabia, the dominant OPEC producer and de facto leader, was eager to agree the cut. However, simmering tensions with fellow member and regional rival Iran meant the talks were fractious, with the Iranians consistently opposed to production cuts. There were also doubts over how deep Russia was wlling to go on the cuts, and over the extent to which the US could influence Saudi Arabia.

Sources told Reuters that the final deal would exempt Iran from making cuts under the agreement, with the country having seen its exports fall lately due to extensive US sanctions against it.

Russia onside, Trump defied

The reported 1.2 million barrels per day figure will be split between OPEC members and the non-OPEC members which are closely allied to the group, the most significant of which is Russia.

OPEC members — namely Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar (for now), Saudi Arabia, United Arab Emirates and Venezuela — are expected to account for 0.8 million barrels per day of the cut, with the remainder coming from the production of Russia and other OPEC allies.

Read more: Riyadh between an OPEC rock and Trump's hard place

Russian Energy Minister Alexander Novak had returned to Russia for talks with Vladimir Putin over whether the country would support the cut, and he returned to Vienna on Friday with news that a deal could be done on their side.

A Russian Energy Ministry source told Reuters that the country was ready to contribute at least half of the cut of 0.4 million barrels per day expected of the aligned non-OPEC members.

The price of crude has fallen by almost a third since October, with Saudi Arabia, Russia and the United Arab Emirates having raised output levels to offset the reduced levels coming from Iran, OPEC's third largest producer.

Trump and the US had called for production levels to remain high, particularly to keep pressure on Iran in the midst of the sanctions. US representatives even met Saudi Arabian Energy Minister Khalid al-Falih in Vienna this week, an unprecedented intervention from the US ahead of an OPEC meeting.

Deal's value remains to be seen

That US pressure, doubts over the levels of cuts Russia would agree to and the possibility of Iran vetoing a final deal led to fears on Thursday that no agreement would be reached. The price of oil fell sharply on the back of the uncertainty, and that decline appears to have prompted a rethink.

However, Bob McNally, president of US-based Rapidan Energy Group, cautioned that the deal may not end up being as significant as the headline figure suggests.

"The OPEC cut is fuzzy on details and will likely result in less reduction than the headline figure of 1.2 million bpd (barrels per day)," he said. "President Trump will not be happy to see today's headlines, but how strongly he reacts depends mainly on whether crude prices rise strongly as a result in coming days and weeks."

Such deals are typical for OPEC. In 2016, the cartel struck a deal with Russia to reduce global crude production by 1.8 million barrels a day.

The aim of that deal, like this one, was to halt the sliding price of oil, which hit a 13-year low in 2016 of $30 (€25) a barrel, having been as high as $100 a barrel in 2014.

That fall in prices had obviously been good for consumers, long used to steeper prices, but it wreaked economic havoc in oil-dependent countries such as Venezuela. Yet the deal worked to a large extent, with oil prices reaching a two-year high ahead of the OPEC meeting this time last year.

aos/kd (Reuters, AFP)