Defying all odds, OPEC provisionally reached the much-hyped agreement to cut output in a bid to boost oil prices. According to an OPEC delegate quoted by Bloomberg News, the ministerial meeting in Vienna has just reached a deal to cut output by 1.2 million barrels per day to 32.5 million barrels per day.
But there’s a catch. According to a ZeroHedge tweet, it looks like the OPEC deal would be conditional on a subsequent deal with non-OPEC producers in December to agree on a 600,000-bpd cut. If this is indeed the case, the oil production cut saga and drama will continue to drag on.
And then there’s the fact that no details have been released as of yet. So the question is, how is this provisional agreement to cut production 1.2 million barrels any different than the provisional agreement to agree—from what was already decided two months ago in Algiers? We’re not sure we can answer that.
But never mind the details. Oil prices started rallying early on Wednesday morning as the OPEC meeting in Vienna started. Even though the meeting still ongoing as of the time of writing, and no official statement has yet been issued, crude oil prices continue to surge, and as of 8:45 AM (EST) WTI Crude was trading up 7.1 percent at US$48.44, while Brent Crude was soaring 7.44 percent past US$50, to US$50.84.
Although the optimism is cautious due to the lack of details, OPEC sources, unofficially, have reported that Saudi Arabia has agreed to treat Iran as a special case, allowing it to increase output to around 3.9 million bpd, according to Bloomberg. This caving on behalf of Saudi Arabia is quite telling of the dire economic straits Saudi Arabia is now in.
The Saudis, Iran and Iraq may have overcome this one issue, but we’ve yet to see who will be cutting/freezing how much, how the deal would be monitored, and will members would stick to it at all—and of course—whether it will actually go through if non-OPEC members fail to climb onboard. A situation eerily reminiscent of the meeting in Algiers.
On Tuesday, just a day before the OPEC oil ministers’ meeting, Iraqi Prime Minister Haider al-Abadi told The Associated Press that Iraq would agree to cut its crude oil production as part of OPEC’s efforts to boost prices, because current prices are not sustainable. Related: Ahead Of OPEC’s Meeting, API Inventory Report Shows Major Crude Build At Cushing
The Iraqi prime minister said that he had learned that OPEC would decide to cut its total crude output by between 900,000 bpd and 1.2 million bpd. If a cut were to materialize, it would be a reduction of between 2.7 percent and 3.6 percent from the October levels of 33.643 million bpd, according to OPEC’s secondary sources data.
“Yes, we will take our share and we agreed to this,” the AP quoted al-Abadi as saying.
According to Kenneth Medlock, director at a center for energy studies at Rice University, a commitment to cut by Iraq could send a signal to other OPEC members reluctant to cut to rethink their views.
Last week, it was the Iraqi prime minister who first suggested that Iraq would be joining the OPEC cuts, saying that Baghdad would gain in oil revenues what it would lose in production.
By Tsvetana Paraskova for Oilprice.com
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