Last week, major oil producers meeting in Austria agreed to cut oil production by 1.2 million barrels per day (bpd). OPEC producers and non-OPEC oil exporting countries including Russia agreed last Friday to make the cut, which will be done during the first six months of 2019.
OPEC agreed to reduce its output by 800,000 bpd, while Russia and allied producers (10 producers in all) will contribute a 400,000 bpd reduction. OPEC member Iran was granted an exemption to the cuts because it is subject to U.S. sanctions which are already damaging its oil industry.
The deal was aimed at putting a floor under recently volatile oil prices. Oil markets have stabilized this week on hopes that the cuts will support prices, as well as data showing a decline in U.S. crude inventories.
“Time will tell how effective the new production agreement will be in re-balancing the oil market. The next meeting of the Vienna Agreement countries takes place in April, and we hope that the intervening period is less volatile than has recently been the case,” the IEA said.
On Thursday, Brent crude futures were trading fairly flat at $60.36 per barrel and U.S. West Texas Intermediate at $51.26. The IEA maintained its previous global oil demand growth forecast in its latest monthly report, forecasting demand growth of 1.4 million barrels a day “as the impact of lower prices is offset by lower economic growth assumptions, weakening currencies and downward revisions to certain countries e.g. Venezuela.”
Despite the agreement, the OPEC meeting in Vienna, Austria last week threw up stark divisions between producers with some more reluctant to cut than others. The cut also came after Saudi Arabia, the de-facto leader of OPEC, and Russia, had increased production over the summer.
Ahead of the OPEC and non-OPEC deal last week, the IEA noted that OPEC output had risen 100,000 barrels a day month-on-month to 33.03 million barrels per day in November as Saudi Arabia and the United Arab Emirates’ output reached record highs, offsetting a sharp loss from Iran.
“By agreeing a cut of 1.2 mb/d, and additional output curbs in Canada, producers may go some way towards restoring balance to the world market,” the IEA said. The forecast for non-OPEC supply growth for 2019 has been reduced by 415,000 b/d since last month’s report, to 1.5 mb/d, compared with growth of 2.4 mb/d expected in 2018.