The move (seeking to prop up the price of crude as the global economy weakens and US production soars) brought the total production cut to 1.7 million barrels per day, or 1.7% of global demand, Reuters reported.
OPEC is to shoulder 340,000 bpd in fresh cuts and non-OPEC producers an extra 160,000 bpd, one source said on Friday, adding that this level of output curb was much larger than many had expected.
Benchmark Brent oil prices were steady on Friday near $63 per barrel, Financial Tribune reported.
“Despite the deeper potential cuts, we view most headlines so far as falling short of consensus expectations,” Goldman Sachs said in a note citing factors including the short duration of the deal.
Iran, Libya and Venezuela are exempt from cutting output (as US sanctions have severely constrained their ability to export), while OPEC’s other 11 members (Saudi Arabia, Iraq, Kuwait, Angola, Algeria, Nigeria, Gabon, Ecuador, Congo, UAE and Guinea) are participating.
OPEC and OPEC+ have cut their collective production by 1.2 million bpd (OPEC 800,000 bpd and OPEC+ 400,000 bpd) since January 2018 in a bid to counter increasing global oil supply from the likes of US shale oil producers and lackluster demand.
OPEC is and will be under pressure from rising US oil output.
The US is now the world’s largest oil producer hitting 12.3 million bpd in 2019, according to the US Energy Information Administration, up from 11 million bpd in 2018.
The deal agreed on Friday “should ensure a $60-$65 Brent oil price in the seasonally weak period of next year,” said Gary Ross, founder of Black Gold Investors.
Russian Energy Minister Alexander Novak said OPEC agreed to allow all OPEC+ members to exclude condensate from their oil output calculations, same as OPEC does with its own figures.
Condensate is a high-value light type of crude oil extracted as a by-product of gas production.
For Russia, it means that some 760,000 bpd of condensate would be excluded from calculations, meaning Russian baseline production used for cuts would decline to around 10.66 million bpd from 11.42 million.
Dwindling Share
“OPEC’s share of the global oil market has kept dwindling over the last 50 years under the pretext of keeping crude prices at reasonable levels,” Iran’s Oil Minister Bijan Namdar Zanganeh said on the sidelines of the Vienna meeting.
Referring to OPEC data, he noted that crude oil from the Organization of the Petroleum Exporting Countries accounted for 30% of world oil supply in July 2019, down from more than 34% a decade ago and a peak of 35% in 2012.
“High oil prices are the main culprit contributing to not only non-OPEC surplus crude oil production capacity but also the emergence and triumph of US shale oil, which has expanded global supply of oil exponentially.”
The minister believes that deep cuts in OPEC’s output and keeping prices in very high levels will help US shale oil to boom further. “If prices had been kept low, US shale would have never thrived.”
Energy analysts have warned OPEC that by 2025, US shale oil supplies will climb more than 40% to reach 17 million barrels a day, or 3.1 million a day more than OPEC projected in last year’s report, in which case American oil will account for a fifth of global daily output.
However, OPEC (according to its annual report) expects that demand for its oil will slide by about 7% over the next four years, slumping to an average of 32.7 million barrels a day in 2023.
Zanganeh added that if (and when) US unilateral sanctions are lifted, the National Iranian Oil Company will resume production at its highest level (at least 3.5 million bpd) and the new limitations (1.7 million cuts) will not be applied to Iran.
“Those who have taken our market share (due to sanctions) should reduce their output further after Iran’s embargo ends.”
Referring to Russia’s request to exclude condensates from its output, he noted that it is completely rational as OPEC’s main concern is crude oil.