OPEC to meet non-OPEC producers on December 10 in Moscow

OPEC agreed to reduce collective production to 32.5 million barrels per day, Iranian Oil Minister Bijan Namdar Zanganeh said in Vienna on Wednesday.

OPEC agreed Wednesday to cut output by 1.2 million barrels a day, reversing a strategy that produced lower oil prices and pain for US drillers but saved money for consumers.

Still, analysts say there could be some short-term shocks before OPEC’s cuts take effect in January. Opec controls about one-third of the world’s oil supply, and a number of energy analysts on Wednesday said they expect prices to reach the $55-to-$60-per- barrel range in fairly short order.

Oil prices steadied at around $53.50 a barrel on Friday after the biggest weekly rally since 2009 following OPEC’s decision this week to cut crude output in order to rein in a global glut. The chart below shows how the price of oil rose sharply after the deal was announced. Countries such as Russia, Saudi Arabia, Iran and Venezuela depend heavily on oil revenue to fund their governments and sustain their economies. For Russia, it’s the first production cutback in fifteen years….and the combination caught global markets by surprise.

This deal will obviously enhance the prospects for the Oil and Gas industry with the impacts already being felt as oil prices surged more than 8% Wednesday afternoon in London, hitting a high of $51.84 a barrel.

But non-Opec countries are also party to the deal and will be expected to reduce production by a further 600,000 barrels a day. Meanwhile, the February contract for Brent crude climbed 48 cents, or 0.9%, to $54.42 a barrel.

Even after Thursday’s steep rise, oil prices remained about half their mid-2014 levels, when prices began to collapse to the lowest in a generation. Russian Federation has agreed to trim output by as much as 300,000 a day, though Energy Minister Alexander Novak said the cut will be gradual.

US crude production has risen by over 3 per cent this year to 8.7 million bpd, as its drillers have aggressively slashed costs.

The tentative agreement sent crude soaring above $50 a barrel – but the lack of agreement on final details caused investors to worry that the deal may fall through.

“In fact, we’re not even fully confident that Russian Federation will freeze production, particularly if the market tempts them with higher prices”, said Tim Evans, a Citi Futures analyst.

Regarding Indonesia’s decision to suspend its OPEC membership, JP Morgan said that this move reinforces its concerns about tensions within the organization and the challenge of delivering these cuts.