Oil cartel seeks output cutbacks by non-member countries

The world’s top oil exporter told Opec it pumped a record 10.72 million bpd last month, an Opec source said, up from 10.625 million bpd in October.

“When you look at what Saudi Arabia and Iraq are going to cut, that is going to be their higher cost barrels, so their medium-and-heavy grades of crude”, Darrell Bishop, head of energy research for Calgary-based Haywood Securities, explained to BNN via telephone early Monday morning.

The OPEC cutback alone would have been noteworthy as the first time in eight years the cartel was able to agree on such a move.

However, he added that prices would “turn negative very quickly if the market feels compliance won’t happen”. Non-OPEC country Nigeria may join the other nations in cutting production but has not publicly announced a change in their oil plans.

“This is an unprecedented event”, said Thomas Finlon, director of Energy Analytics Group in Wellington, Florida. Moreover, Russia says its current oil output is equal to reducing production by 0.3 million barrels a day because its original planned output for 2017 is more than the current level. “This is enough to have an impact”.

The agreement between OPEC and a number of other oil producing nations was the first joint action since 2001, following more than two years of low prices that strained many government’s budgets and spurred unrest in countries from the Middle East to Latin America.

And although Russian Federation announced Wednesday that national oil companies backed cuts of 300,000 bdp, news agencies quoted Lukoil chief executive Vagit Alekperov as saying “No decision was made”.

The non-OPEC reduction is equal to the anticipated demand growth next year in China and India, according to data from the International Energy Agency. Other countries such as Azerbaijan will probably follow the same route.

“In coming out with such a strong statement, Khalid Al-Falih had something of Mario Draghi’s “whatever it takes” moment”, said Helima Croft, chief commodities strategist at RBC Capital Markets LLC, referring to the European Central Bank president’s pledge to save the single currency at the height of the euro-zone crisis in 2012. “Shale producers may increase activity, but it will take at least 12 months for those barrels to come into the market”.

Opec announced last month that it would be slashing its own production to ease an oversaturated global market.

Under the OPEC deal from November 30, UAE pledges to cut 139,000 bpd from a reference production level of 3.013 million bpd.

Opec now seeks a global cut of 1.8 million barrels a day to help rebalance the market.

Indices in London, Frankfurt and Paris pulled back after soaring last week when the European Central Bank made a decision to extend its massive quantitative easing stimulus to December 2017.

Both WTI crude and Brent saw gains of over 4% on Monday after the summit between members and nonmembers of the Organization of the Petroleum Exporting Countries.

“Sixty, I think would be ideal”, he said. “The higher the price goes and the faster it happens, the higher and faster production of US shale goes up”.