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OPEC, Russia agree to slash oil output despite Trump pressure

11 December, 2018, 00:22 | Author: Shawna Walton
  • The U.S. exported more oil gasoline and other petroleum products than it imported in the last week of November. Katie Howell  E&E News

"The OPEC+ cut is fuzzy on details and will likely result in less reduction than the headline figure of 1.2 million bpd", said Bob McNally, president of USA -based Rapidan Energy Group.

Saudi Arabia doesn't wield the same level of power on the oil market - thanks in part to USA shale oil production - as it did in 1973, when it triggered an oil embargo against Western countries for supporting Israel.

Oil prices spiked sharply higher Friday as major oil producers, including the OPEC cartel, agreed to cut global oil production by 1.2 million barrels a day to reduce oversupply.

"BNP Paribas strategist Harry Tchilinguirian told the Reuters Global Oil Forum: "(A cut of) 1.2 million bpd, if implemented promptly and fully, should be enough to largely attenuate, but not eliminate, expected implied global inventory builds in the first half of next year".

Oil prices crept up as discussions rolled into day two, with Brent Crude and West Texas Intermediate (WTI) both seeing an increase during London trading hours.

Oil prices went up about 5%.

The escalation of the US trade war with China was also starting to show its impacts on the world's economy in the form of lower oil demand.

An output reduction would provide support to Iran - OPEC's third-largest producer - by increasing the price of oil amid attempts by Washington to squeeze the country's economy.

The surge of USA oil production, which has increased by 2.5 million bpd since early 2016 to 11.7 million bpd, has given OPEC and other oil pumpers more pressure in global market competition. Iran said that it has been exempt from the deduction because it is already facing American sanctions.

Junior oil firm Bonterra Energy Corp. announced last month it would cut its monthly dividend to a penny from 10 cents per share because of low oil prices. The United States recently reimposed sanctions on Iran that had been lifted during the Obama administration.

Russian Federation 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.

Thus, the total oil output in OPEC+ countries will be cut by 1.2mln bpd (by 800,000bpd for OPEC countries, by 400,000bpd for non-OPEC countries) or from 2% to 2.5% for each country.

OPEC ministers came to Vienna recognizing the economic realities. The U.S. imports more than 7 million barrels a day of crude from all over the globe to help feed its refineries, which consume more than 17 million barrels each day.

January natural gas NGF19, +4.00% rose 3.7% to $4.488 per million British thermal units, but still suffered a weekly drop of 2.7%. Hittle and Investec bank said Brent could return to $70 a barrel next year, while others said a bigger cut was required to reach that level.

Physical markets were taken aback by the United States granting waivers on the Iran sanctions to the eight largest importers of Tehran's crude. Possible trade wars between U.S.


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