Eleven non-OPEC nations agree to oil output cuts
Eleven non-OPEC nations have agreed to cut their oil production outputs and help the members of the Organization of Petroleum Exporting Countries (OPEC) to end the world’s glut of crude and reverse a dramatic fall in income.
The cartel announced that Russia and 10 other non-OPEC states will reduce their production by more than half a million barrels per day (bpd).
The deal will take effect from the start of next year and last for six months, although it might be extended depending on market conditions.
“I am happy to announce that a historic agreement has been reached,” said Qatari Minister of Energy and Industry Mohammed bin Saleh al-Sada, whose country holds the rotating presidency of OPEC.
The cut would contribute to OPEC’s own initiative to ease a saturated market and end a price slump that has brutally affected the economies of many oil producers.
On November 30, its members announced a slash in output by 1.2 million bpd beginning in January, to 32.5 million bpd.
Under that deal, OPEC called on non-member producer states to lower their output by 600,000 bpd. The deal approves cuts totaling 558,000 bpd. Russia had already signaled it would provide half of that production cut in the first half of next year.
Among the other countries that are to contribute cuts, Kazakhstan agreed to reduce production by 20,000 bpd, Mexico 100,000 bpd, Oman 40,000 bpd and Azerbaijan 35,000 bpd, according to Bloomberg.
The deal also includes Malaysia, Bahrain, Equatorial Guinea, Sudan, South Sudan and Brunei.
“This is a truly historic event, the first time that so many oil-producing countries are meeting in one room, to accomplish what we’ve done,” Russian Minister of Energy Alexander Novak said at a news conference.
In a statement following the meeting, OPEC said the other oil giants were working “to achieve oil market stability in the interest of all oil producers and consumers.”
A monitoring committee will be set up, comprising three OPEC and two non-OPEC members.
Sada said OPEC would continue its efforts to persuade non-OPEC producers to join the reduction effort.
In another signal to the markets, the cartel’s leading producer Saudi Arabia announced that it would go “substantially” beyond its commitment of production cuts.
In a speech to the conference earlier, Novak stressed the plunge in oil prices had led to “severe consequences.”
“What the past two months have shown is that there is a growing consensus among producers that the market recovery process has taken far too long… It has had a major impact on all our countries, in terms of economic growth, heavy losses in revenue and deep social spending cuts,” he said.
As for the impact on consumers, he said: “We only have to look at the damaging levels of deflation in some OECD [Organisation for Economic Co-operation and Development] countries, as well as the record low interest rates, sometimes in negative territory in real terms, which is partly attributed to lower oil prices.”
Last month’s agreement ended weeks of uncertainty and volatility on crude markets, pushing prices to more than US$50 for the first time in a month.
It also represented a dramatic reversal from OPEC’s Saudi-led game plan, introduced in 2014, of flooding the market to force out rivals, particularly US shale oil producers.
The strategy saw production outstrip demand, causing prices to plunge from more than US$100 per barrel in June 2014 to near 13-year lows below US$30 per barrel earlier this year.
OPEC produces about 40% of the world’s crude, so it needed non-OPEC members to join the cuts to drain current stockpiles.