Opec and its oil producing allies reached an agreement to cut production by 1.2m barrels a day, defying Donald Trump’s calls to keep output high and sending crude prices rocketing 5 per cent higher.
The deal was hammered out at the Opec secretariat in Vienna following two days of fractious talks, with Saudi Arabia — Opec’s largest producer and de facto leader — pushing as many members as possible to join the cut.
The Saudi push comes despite the US president’s exhortations for Riyadh to keep prices low and reflects the kingdom’s need for higher oil revenues to meet its ambitious domestic spending plans.
Brent crude, the international benchmark, jumped as much as 5 per cent to above $63 a barrel, while US benchmark West Texas Intermediate gained 4 per cent to $54 a barrel.
Opec delegates said the deal was aimed at damping concerns about an emerging glut of supplies that has pushed prices 30 per cent lower in the past two months.
One delegate said the 1.2m b/d cut would be split 800,000 b/d for Opec members and 400,000 for countries outside the cartel, which have allied with Opec since 2016.
Delegates said that Iran, Saudi Arabia’s regional rival, was asked to make a “symbolic” cut, even though its exports have fallen due to US-imposed sanctions last month, but eventually won an exemption from the broad agreement. Libya and Venezuela had also sought exclusion from the cuts.
Russian energy minister Alexander Novak, who was seen as key to clinching a deal and who met with his Saudi Arabian and Iranian counterparts on Friday morning, said it was important for producers to send a "strong signal" to the market.
“It is extremely important to send a strong signal and act with resolve,” Mr Novak said ahead of a follow-up meeting between Opec and its allies outside the cartel, where the final deal is expected to be signed off. “We will be ready to come to a mutual understanding.”
The move to cut output will go against demands from Mr Trump, who has described falling oil prices as a “tax cut” for the world and called on producers, including Saudi Arabia, to maintain high levels of output.
Khalid al-Falih, Saudi Arabia’s energy minister, had cautioned ahead of the meeting that a deal might not be possible but the pressure of the falling oil price may have helped forge an agreement. Prices lost as much as 4 per cent on Thursday, rattling ministers from economies where oil is often the primary source of revenues.
Mr Falih had also suggested that a cut of roughly 1m b/d was most likely in the event of a deal, but the higher volume now agreed is more in line with what traders and analysts said would be necessary to balance supplies with demand next year.
“Surprisingly, they seem to be aiming for 1.2m barrels a day, which is larger than what we’ve been hearing in the last two days,” said Ann-Louise Hittle at consultancy Wood Mackenzie. “That should help tighten the market by the second half of next year.”
Opec delegates had said that a larger cut than 1m b/d — which Mr Falih had deemed “adequate” — would require greater co-operation from Russia.
Saudi Arabia and Russia have ramped up production to record levels in recent months in response to demands from the US to keep output high and prices low as it reimposed sanctions on Iran’s energy exports.
Yet Washington’s decision in November to issue waivers to many buyers of Iranian oil has meant output from global producers, including the US, has overwhelmed demand.
– Copyright The Financial Times Limited 2018
