On 30 November, at OPEC’s 171st Ordinary Meeting in Vienna, an agreement was signed to reduce production by 1.2 million barrels per day. Fourteen OPEC (oil-producing) countries met for the negotiations and, for the first time since 2008, made a decision that saw the crude oil price rise by 8 per cent to $50 a barrel, in line with that agreed in Algeria in September. The market reacted almost instantaneously; the Brent oil price, increased by almost $8 in just two days, ending up above the $50 threshold. In this critical period for the market, OPEC’s decision is undeniably important and goes beyond the effect on prices. For the first time in eight years, it seems countries are putting tensions aside and looking to work together.

Having analysed the recent trends and the report prepared by the High-Level Committee formed in Algiers at the end of September, OPEC reaffirmed how current market conditions can be damaging for both consumer countries and producers alike, and how collaboration between the two sides, both within and outside the organisation, is fundamental to restore balance and reduce the current very high levels of stockpiling.

In full accordance with the decision made during the meeting last November, OPEC representatives have decided to extend the output cuts – amounting to 1.2 million barrels per day compared with October 2016 – for a period of nine months.

 

Which countries signed up to the agreement?

Commitments made by OPEC countries in Vienna will see oil production fall by 1.2 million barrels per day across the world from January, with probable impacts on price. OPEC production consistently increased throughout 2016. This growth was driven by the return of Iran (+0.7 million bpd) and record production from Saudi Arabia, which is promoting the new policy to shore up the price. Production in Russia, a non-OPEC country, is also accelerating thanks to the devaluation of the rouble, favourable taxation, low extraction costs and significant greenfield investment in the past.

Of the 14 oil producing countries, Indonesia was suspended from OPEC, while Libya and Nigeria were exempted from the agreement.

*Iran expands its production

Statistics in brief

• 1.2 million bpd cut from January 2017 for 9 months
• Total OPEC production: 32.5 million bpd (vs. 33.6 million bpd in October)
  1. Saudi Arabia 0.5 million bpd
  2. Iran 3.8 million bpd target 
  3. Iraq -0.2 million bpd
• Non-OPEC countries ready to reduce production by 0.6 million bpd, including 0.3 million bpd from Russia. At the meeting of December 10, a further cut of 0.558 Mb/d has been agreed.