Oil Deal Marks New Era For OPEC

Tehran agreed to limit its production to just under 3.8 million barrels per day, nearly the same amount of 2005 before beginning of the sanctions.

“Trying to get an agreement for a pro rata cut among the Russian oil producers, even if mandated by the Kremlin, would be akin to herding cats”, Weafer said by email Thursday.

OPEC president Qatar said non-OPEC producers had agreed to reduce output by a further 0.6 million bpd, of which Russian Federation would contribute some 0.3 million. This agreement follows an earlier meeting held in September in Algeria were each member country reached a consensus on the need to cut production. However, the summit was canceled after Saudi Arabia, representing OPEC, decided not to participate in the talks.

Russia, the biggest producer outside OPEC, will cut output by as much as 300,000 barrels a day from the current level of 11.2 million barrels a day, Energy Minister Alexander Novak said overnight. Mohammed’s decision to let Iran increase production could be a sign that he is looking for the right time for a rapprochement. Experts contend that Tehran has worked out a good deal.

West Texas Intermediate for January delivery rose $US2.11, or 4.3 per cent, to $US51.55 a barrel on the New York Mercantile Exchange.

In fact, USA producers have emerged stronger and leaner, allowing them to pump at prices that were once too low. He expects oil companies to double their earnings in 2017 on the back of a sustained increase in crude oil prices and low oilfield service costs. It took three days of closed-door negotiations, but OPEC did cobble together a major deal between rival factions, namely Saudi Arabia and Iran.

Anything short of a production cut would have taken too long to eliminate the oil surplus, Venezuela’s Del Pino said in a Bloomberg TV interview. Saudi Defense Minister and Deputy Crown Prince Mohammed bin Salman, who effectively steers the country’s oil policy, struggled with this conundrum. There was, however, one casualty from this deal. (Libya and Nigeria were exempted.) However, each country has a significant incentive to cheat and pocket a few extra dollars by producing beyond the official quota.

In a note to its clients, leading multinational finance company, Goldman Sachs raised a point that is now on everybody’s mind.

Despite the historic deal, doubts were widespread in the market. But Russia said it intends to reduce production within the first half of 2017, rather than in January as with the OPEC cuts, which some see as Moscow giving itself a half-year grace period.

At the meeting in Vienna, key members of OPEC expressed renewed optimism as compromises were reportedly being made. “Also it was agreed that political lobbying was important, especially with Mr. Putin, and again the Leader approved it”, said the source.

Both shale and OPEC production will play an important role in making sure that enough oil will flow to the market over the next year.

But OPEC would not be OPEC without a last-minute quarrel threatening to derail the deal.

Saudi Arabia’s market share battle has “turned out to be a failed experiment”, Michael Tran, commodity strategist at RBC Capital markets, wrote in a recent report. The drop in India’s inflation levels has been largely down to the huge slump in crude oil prices. At present, India incurs a massive Rs. 4.5 lakh crore on crude imports.