Members of the Organisation of Petroleum Exporting Countries (OPEC) have agreed to cut production — the first in eight years—by 1.2 million barrels per day (mb/d) to bring ceiling to 32.5 mb/d, effective from January 1.
Minister of State (Petroleum) Emmanuel Ibe Kachikwu told reporters on the sidelines of the meeting that “this production cut is expected to boost the price of crude oil in the market to around $60p/b in the next few days into the New Year when the cut is expected to take effect.”
Speaking at the end of the 171st conference in Vienna, Austria, Dr. Mohammed Bin Saleh Al-Sada, Qatar’s Minister of Energy and Industry and President of the OPEC Conference, said the duration of the agreed cut will be for an initial six months “extendable for another six months to take into account prevailing market conditions and prospects”.
He said the agreement was endorsed by member-countries “to be without prejudice to future agreements with the establishment of a ministerial monitoring committee composed of Algeria, Kuwait, Venezuela and two participating non-OOEC countries, chaired by Kuwait and assisted by the OPEC secretariat to closely monitor the implementation of and compliance with the agreement and report to the conference.”
Dr. Al-Sada said the agreement was “reached following extensive consultations and understanding reached with key non-OPEC countries, including Russia that they contribute by a reduction of 600 thousand (tb/d).”
Following Indonesia’s refusal to agree to the cut, the Asian country suspended its membership of the organisation. Nigeria and Libya were exempted from making cuts because of the peculiar economic and social challenges they were facing.
Saudi Arabia will take the biggest cut of 486tb/d.
Also, Algeria is expected to reduce its output per day by 50,000; Angola, 87,000; Ecuador, 26,000; Gabon, 9,000; Iran, 90,000; Iraq, 210,000; Kuwait, 131,000; Qatar, 30,000; UAE, 139,000 and Venezuela by 95,000.
Dr. Mohammed Bin Saleh Al-Sada said non-OPEC member Russia was committed to the agreement. It will cut production to about 300tb/d.
Kachikwu said vandalism of crude oil pipelines and militancy activities in the Niger-Delta was the reason Nigeria was exempted.
“We are grateful that the OPEC was understanding of the case we made about why Nigeria needs to be exempted from this cut.
“This gives us time to get our house in order by resolving the Niger-Delta crises. Already production in Nigeria is up to 1.9 million barrels and we expect to get it up to 2.2 million but not flood the market.
“We all have the responsibility to contribute to the tightness of this market,” he said.
Kachikwu said the cut would re-balance the price of crude oil globally and projected that oil prices would go up to 60 dollars per barrel from the 50 per cent it traded today.
Asked of what the Organisation’s reaction will be if some OPEC and non-OPEC players decide not to comply with the agreement, Al-Sada said “all indications that they will comply with the agreement are there with commitments from countries like Russia to do more than comply but also take production cut.”
Brent crude, the global benchmark that had soared in anticipation of a deal, extended earlier gains, trading 8.5 per cent higher at $51.36. West Texas Intermediate crude oil was up 8.1 per cent at $48.92.
OPEC members have said they were targeting prices as high as $55 to $60 a barrel, levels that would boost petroleum-dependent economies that have been badly damaged by two years of prices often below $50 a barrel.
The breakthrough came after months of on-and-off-again negotiations that made many traders doubt an agreement could be reached.
As recently as Tuesday, oil prices tumbled on market skepticism that clashing OPEC members and other major oil producers could come together on a meaningful deal.
“It’s a good day for the oil market, it’s a good for the oil industry,” said Saudi Energy Minister Khalid al-Falih. “Our friends from Russia and other non-OPEC countries have agreed to reciprocate and contribute significant volumes of cuts starting in January.”
Qatar’s Minister of Energy and Industry, Dr Mohammed Al-Sada, told reporters at the end of the 171 meeting that “this agreement was reached following extensive consultations and understanding reached with key non-OPEC countries, including the Russian Federation that they contribute by a reduction of 600,000 barrel per day.
“The duration of this agreement is six months, extended for another six months to take account of prevailing market conditions and prospects.
“We also agreed to establish a Ministerial Monitoring Committee composed of Algeria, Kuwait, Venezuela and two participating non-OPEC countries, chaired by Kuwait and assisted by the OPEC secretariat.
“They are expected to closely monitor the implementation of and compliance with this agreement and report to the conference,” Al-Sada said.
He said the next Ordinary Meeting would convene in Vienna, Austria on May 25, 2017 to review the implementation of the agreement.