The Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia on Thursday agreed to one of the deepest output cuts this decade to support crude prices and prevent a glut, though they are still debating how long the curbs will last into next year.
OPEC is meeting to discuss supply policy in Vienna and is scheduled to meet on Friday with Russia and other producers – a grouping known as OPEC+.
Russian Energy Minister Alexander Novak said a panel of key energy ministers – including those from Saudi Arabia and Russia– had recommended that the OPEC+ group deepen existing supply curbs of 1.2 million barrels per day (bpd) by another 500,000 bpd. The cut of 1.7 million bpd would amount to 1.7 percent of global supply.
Novak said cuts would last through the first quarter of 2020, a much shorter timeframe than suggested by some OPEC ministers, who have called for extending cuts until June or December 2020. OPEC could in theory decide to approve a longer timeframe than OPEC+.
“We concluded that in order to safely go through the seasonal demand period in the first quarter of 2020, it could be recommended that countries additionally cut up to 500,000 barrels per day,” Novak said.
OPEC+ has agreed to voluntary supply cuts since 2017 to counter booming output from the shale fields of the United States, which has become the world’s biggest producer of shale. Washington has forced an even steeper reduction in supply through sanctions on OPEC members Iran and Venezuela aimed at choking both countries’ oil export revenue.
As producers meet on Thursday and Friday, they will consider how to balance their supply with another year of rising output from the US in 2020. Other non-OPEC countries such as Brazil and Norway are also expected to pump more oil.
Ministers from Saudi Arabia, Russia, Kuwait, the United Arab Emirates, Oman and Algeria had their pre-OPEC meeting on Thursday with the OPEC meeting still not started as of 15:20 GMT.
Saudi Arabia needs higher oil prices to support its budget revenue and the pending initial public offering (IPO) of state-owned oil giant Saudi Aramco with pricing of the debut share sale expected on Thursday.
OPEC’s actions in the past have angered US President Donald Trump, but Trump has said little about OPEC in recent months. That might change if oil and gasoline prices rise ahead of the US presidential election set for November 2020.
OPEC’s actions have supported oil prices at around $50 to $75 per barrel over the past year. Brent crude futures on Thursday extended this week’s gains to trade above $63 per barrel.
OPEC sources have said Riyadh was pressing fellow OPEC members Iraq and Nigeria to improve their compliance with quotas, which could provide an additional reduction of up to 400,000 bpd.