OPEC agrees to extend current output cuts by nine months
OPEC agreed on Monday to extend production cuts by nine months after several members of the Middle East-dominated producer group endorsed a policy designed to support oil prices amid a weakening global economy.
The deal is subject to approval from non-OPEC allies at a meeting on Tuesday, with Iraq’s oil minister saying he did not anticipate any complications. Earlier in the day, Iranian Oil Minister Bijan Zanganeh told reporters he had “no problem” with supporting oil supply cuts by nine months.
Tehran, which had been OPEC’s third-largest producer prior to the re-imposition of U.S. sanctions, has previously objected to policies put forward by arch-rival Saudi Arabia.
OPEC deliberated the oil production cuts during its meeting on Monday. The deal endorsed now has to be endorsed by non-OPEC members, such as Russia, on Tuesday.
The producer group and its allies have been reducing oil output since 2017 to prevent prices from sliding amid soaring production from the U.S. — which has become the world’s top producer this year ahead of Russia and Saudi Arabia. The cuts are running at a volume of about 1.2 million barrels per day.
The U.S. is not a member of OPEC, nor is it participating in the supply pact. Washington has demanded Riyadh pump more oil to compensate for lower exports from Iran after slapping fresh sanctions on Tehran over its nuclear program. However, the U.S. has also ramped up its oil production in recent years.
Saudi Energy Minister Khalid al-Falih said in a news conference Monday that, from time to time, OPEC and non-OPEC countries need to trim production to prevent extreme volatility, in response to a question on OPEC’s reaction to U.S. shale production.
“I have no doubt in my mind that U.S. shale will peak and the decline like every other basin in history. The question is when,” said al-Falih. He said until it does, it would be “prudent for us that have a lot at stake also for those of us who want to protect the global economy” to make adjustments. Al-Falih added Saudi Arabia has 2.3 million barrels of spare capacity, and that it is producing 9.7 million barrels a day.
The U.S. has been producing 12.1 million barrels per day of oil, according to recent U.S. data, about 1.3 million barrels more than last year.
OPEC and Iran also reached a compromise on a long-term partnership with Russia.
“It’s meant to be formalizing the relationship with Russia in particular,” said John Kilduff of Again Capital. “Within OPEC, every country has a veto over every deal no matter how little oil they produce. Iran didn’t want to be seen to be losing any power to any country outside of OPEC, which seems to be what has been happening with Saudi Arabia and Russia cooking up the production deals.”
Iran’s oil minister had criticized “unilateralism” among some members of the energy alliance, warning it could ultimately lead to the death of OPEC.
“Once this charter is published and seen, people will see it’s a very positive step forward for stability in the energy market for decades to come,” said Saudi Arabia’s al-Falih in a news conference Monday.