OPEC decision gives boost to prices in near term

Oil&Gas Materials 10 December 2018 11:33 (UTC +04:00)

Baku, Azerbaijan, Dec.10

By Leman Zeynalova – Trend:

The 1.2m bpd output cut announced by OPEC and its allies should absorb much of the oil market surplus in the short term, said the UK-based Capital Economics Consulting company.

“As such, it has sparked a rally in oil prices and in commodities more generally. However, we still expect burgeoning supply from the US and soft demand globally to cause oil prices to drop back in 2019. What’s more, the expected decline in oil prices next year will lower production costs for many other commodities, putting more general downward pressure on prices,” Trend reports citing the company.

Capital Economics said in its report that the price of oil surged on Dec.7 as OPEC and its allies announced 1.2 million barrels per day output cut from January 2019.

“We think the reduction in supply is sufficient to support prices in the near term. The group cited concerns about weaker economic growth and the fact that the market is currently well-supplied as the basis for the cut. Of this, OPEC will reduce output by 0.8 million barrels per day from its October production level. But the cuts will not be borne evenly across member countries as Venezuela, Libya and Iran were exempted,” said the UK-based consulting company.

Indeed, according to the company, it looks as though Saudi Arabia will bear the brunt of the cuts with the energy minister saying that January production would fall to 10.2 million barrels per day, implying a 0.5 million reduction.

“Similarly, it appears likely that Russia will account for at least half of the 0.4 million barrels per day reduction agreed by the non-OPEC producers at the meeting. That said, Russia has been ramping up output in recent months so, in absolute terms, production will remain at a high level,” said the report.

The 5th OPEC and non-OPEC Ministerial Meeting was held in Vienna, Austria, on December 7, 2018.

The meeting participants decided to adjust the overall production by 1.2 million barrels per day, effective as of January 2019 for an initial period of six months. The contributions from OPEC and the voluntary contributions from non-OPEC participating countries of the ‘Declaration of Cooperation’ will correspond to 0.8 million barrels per day (2.5 percent), and 0.4 million barrels per day (2 percent), respectively.

OPEC and non-OPEC producers reached an agreement in December 2016 to curtail oil output jointly and ease a global glut after more than two years of low prices. OPEC agreed to slash the output by 1.2 million barrels per day from January 1.

Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce output by 558,000 barrels per day starting from January 1, 2017.

OPEC and its partners decided to extend its production cuts till the end of 2018 in Vienna on November 30, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.


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