OPEC, Other Major Oil Producers Agree to Cut Global Oil Production

Inside OAO Lukoil's Nizhegorodnefteorgsintez Oil Refinery

Inside OAO Lukoil's Nizhegorodnefteorgsintez Oil Refinery

Oil prices jumped about 5 percent to more than $63 a barrel by 1500 GMT as the combined cut of 1.2 million bpd was larger than the minimum 1 million bpd that the market had expected. The US government announced a re-imposition of sanctions on Iran, which would have led to a cut in Iranian oil exports.

An output curtailment also would provide support to Iran by increasing the price of oil amid attempts by Washington to squeeze the economy of OPEC's third-largest producer.

He told reporters that the kingdom is "not confident" an agreement on oil output cuts can be reached. "I do not know when the U.S. administration will take lessons from this trend", the Iranian petroleum minister said.

Further complicating Riyadh's decisions this week was the crisis around the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul in October.

The cut is unlikely to be greeted warmly by U.S. President Donald Trump, who has been pressuring the cartel publicly to maintain production.

Before Thursday's meeting, Al-Falih said that "if everybody is not willing to join and contribute equally, we will wait until they are" and he was prepared for the consequences of no deal.

Libya and Nigeria were exempt from earlier cuts, while Iran asks not to participate in any deal that would reduce its oil output.

Opec also wants to get Russian Federation on board with cuts.

In the earlier conversation, OPEC and its allies had proposed a reduction of 10 million barrels per day in oil production, in which 6.50 lakh OPECs were to be reduced.

Things have gone to the extent that before finalising a deal on output cut volumes, Opec ministers were kept waiting for a full day, for the Russian energy minister Alexander Novak to return to Vienna from Moscow after receiving fresh directives from President Putin and obtaining his consent to their next move on the global energy chessboard.

Heavyweight Saudi Arabia has been pushing a cut of about 1 million barrels a day, but the oil cartel was not able to make a decision on Thursday.

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'The Iran exemption is the biggest hurdle.

The previously agreed arrangement expires at year-end.

"It's mainly due to the lowered expectations before the deal".

"Saudi economic self-interest trumps Trump, " said Mike Rothman, president of Cornerstone Analytics Ltd., a veteran of three decades of OPEC meetings. The United States recently reimposed sanctions on Iran that had been lifted during the Obama administration.

“Now we have a situation where supply will come off the market, ” Badiali said.

On Thursday, the Energy Information Administration said US crude supplies fell by 7.3 million barrels for the week ended November 30. Yet, it's a paper tiger achievement: In reality, the USA remains exposed to global energy prices, still affected by the old geopolitics of the Middle East.

Saudi Arabia first denied the Hook-Falih discussion took place but later confirmed it.

Data released Friday from Baker Hughes BHGE, +0.88% also implied a decline in future output, with the number of active us rigs drilling for oil down by 10 at 877 this week.

In an October blog post, we cautioned that oil had run ahead of fundamentals and that a release of waivers for Iran oil consumers could cause prices to retrace back to the mid-$70s - effectively erasing some of the geopolitical risk premium that had entered the market.

Russia, Saudi Arabia and the United States have been vying for the position of top crude producer in recent years.

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