After two days of tight negotiations, the fifth meeting of the Organisation of Petroleum Exporting Countries (OPEC) with its non-OPEC allies, ended on Friday with a resolution to cut 1.2 million barrels per day combined oil production capacity.
The highly anticipated decision was delayed since Thursday pending the outcome of the dialogue between both groups on the ideal volume that would be adequate to help stabilise the market and strengthen crude oil price at the international oil market.
The 15-member OPEC agreed to cut a total of 800,000 barrels per day (about 2.5 per cent) from October 2018 levels, while their seven-member non-OPEC counterparts settled for a cut of 400,000 barrels per day (about 2.0 per cent).
OPEC members are Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Congo, Saudi Arabia, United Arab Emirates and Venezuela.
Qatar recently said it would leave the cartel next year.
The U.S. Energy Department’s Energy Information Agency (EIA) identifies the non-OPEC oil-producing countries to include Russia, the United States, China, Mexico, Canada, Norway and Brazil.
OPEC members account for a total 1.2 trillion barrels, or 81.9 per cent of world crude oil reserves, against about 268.6 billion barrels, or 18.1 per cent.
Although OPEC discussed on a range between one million and 1.3 million barrels per day, a consensus had to wait pending a commitment by the non-OPEC allies, led by Russia, on the issue.
OPEC’s decision will, however, not affect Iran, Venezuela and Libya, which were granted exemptions due to their current peculiar economic circumstances.
Iran, in particular, is facing difficult times following renewed sanctions imposed on it by the U.S., while Venezuela is grappling with the worse downturn in her economy, just like Libya.
Nigeria, which benefitted from similar exemption between January 2017 and July 2018, would be expected to further cut its current low 1.73 million barrels per day.
Arriving at the resolution did not come cheap, as negotiations among the non-OPEC members, driven by Russia and U.S., dragged, based on the national interest of each country.
The Russian Energy Minister, Alexander Novak, was quoted by Reuters as saying the decision to cut output was difficult one for his country in view of the winter and the cold weather at Russian oil fields.
For the U.S., its President, Donald Trump, has, for some time, been campaigning for increased oil production, despite the country’s growing shale oil output capacity, which makes the country the world’s largest oil producer in excess of 11 million barrels per day.
OPEC said its decision to cut followed reviews of various reports, including those of its Secretary-General, the Joint Ministerial Monitoring Committee (JMMC), the Joint Technical Committee (JTC), the OPEC Secretariat, and the Economic Commission Board.
Noting oil market developments since its last meeting on June 22, 2018, and the oil market outlook for the remainder of 2018 and 2019, OPEC said current oil supply and demand fundamentals confirmed a fairly stable level.
The group said a consensus about prospects of a growing imbalance in 2019 informed the adjustment in its overall output effective January 2019, for an initial six months period, with potentials for a review in April 2019.
Members, however, agreed to continue to focus on fundamentals for a stable and balanced oil market, in the interests of producers, consumers, and health and sustainability of the petroleum industry.
The meeting between OPEC and non-OPEC members was coming at a crucial period when the oil market sank close to the bottom, with oil prices declining by almost 30 per cent in the last two months.
Signs about a positive outcome of the pally with the non-OPEC allies emerged early Friday, with Russia agreeing to cut output by 200,000 barrels per day.
For the non-OPEC, the decision to adjust its output come January 2019 for an initial period of six months was as a result of prospects of a growing imbalance between global oil supply and demand in 2019.
The sixth OPEC and non-OPEC ministerial conference is scheduled for Vienna, Austria, in April 2019.