London, UK | – OPEC and its Russia-led allies agreed on Friday to slash oil production by more than the market had expected despite pressure from US President Donald Trump to reduce the price of crude.
The producer club will curb output from January by 0.8 million barrels per day (bpd) versus October levels, while non-OPEC allies will contribute an additional 0.4 million bpd of cuts, in a move to be reviewed at a meeting in April.
Oil prices jumped about 5 percent to more than $63 a barrel as the combined cut of 1.2 million bpd was larger than the minimum one million bpd that the market had expected.
Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, has faced demands from Trump to help the global economy by refraining from paring supplies.
An output curtailment also would provide support to Iran by increasing the price of oil amid attempts by Washington to squeeze the economy of OPEC’s third-largest producer.
Asked whether the decision to cut could sour Riyadh’s relations with Washington, Saudi Energy Minister Khalid al-Falih told reporters the kingdom was ready to pump more should a major supply outage occur.
“We will not squeeze consumers beyond what they can afford,” he said, adding that given the US had recently become the biggest oil-producing nation, its energy companies were “breathing a sigh of relief.”
The OPEC deal had hung in the balance for two days – first on fears that Russia would cut too little, and later on concerns that Iran, whose crude exports have been depleted by US sanctions, would receive no exemption and block the agreement.
But Iran finally gave OPEC the green light and Russia said it was ready to cut more.
Russia gave a commitment to reduce output by 228,000 bpd from October levels of 11.4 million bpd, though it said the cuts would be gradual and take place over several months.
The country’s energy minister, Alexander Novak, said Russian President Vladimir Putin had discussed an output decrease with Saudi Crown Prince Mohammed bin Salman.
Iraq, OPEC’s second-largest producer, pledged to cut 140,000 bpd. Falih said Saudi production had dropped to 10.7 million bpd in December from 11.1 million in November and was set to decline to 10.2 million bpd in January. Iran, Libya and Venezuela were effectively given exemptions.
Helima Croft, managing director at RBC Capital Markets, said the deal exceeded expectations. “Having the next meeting in April will be important for planning purposes to speed the cycle up a bit,” she said.
“We don’t know what will Iran’s sanctions picture look like. We don’t know the Iranian volumes which will be coming off the market,” Croft said.
Reuters.
