Historic Agreement Reached: OPEC Will Cut Oil Production

For the first time since 2008 the Organization of Petroleum Exporting Countries (OPEC) has agreed to cut crude output. The deal comes after the November 30th OPEC meeting which took place in Vienna, Austria. After numerous failed attempts, this most recent meeting was a welcomed surprise. Not only will OPEC cut output by 1 million barrels a day, Non-OPEC Russia will also join the output reductions for the first time in 15 years.

The word spread quickly and the international benchmark Brent crude rose nearly 8.8 percent to where it sits now around $51.93 (1:51pm ET 11/30/16) per barrel. The US benchmark WTI, also saw a sharp uptick to $49.53 (1:51pm ET 11/30/16). This dramatic move by the world’s top producers of crude oil has restored some faith in the oil market after months of uncertainty. The 1 million barrel a day reduction equals about 1% of the world’s total crude production and will bring OPEC’s daily output down to around 32.5 million barrels a day.

Saudi Arabia is the unspoken leader of this international group and was a key component in halting any previous decisions surrounding an oil output reduction. A main factor in holding back a decision was Iran’s reluctance to follow along with the rest of the organization, saying they wanted to raise production to pre-sanction levels before they will even consider capping production. Saudi Arabia will now be treating Iran as a special case, allowing them  to raise production levels to 3.8 million barrels a day.

All of this isn’t just great news for the oil market, but for manufacturers as well. Driving the price of crude up will lead to more profitable oil operations around the world. Oil exploration rigs, drilling operations and refineries require a lot of industrial components. The manufacturing industry took a huge hit when oil prices dropped to unprofitable levels and oil rigs across the globe began to be shut down.

OPEC’s agreement also reaches beyond just the countries apart of the organization. Non-OPEC countries have also been outlined in the OPEC agreement which calls for a reduction of around 600,000 barrels a day. Russia has agreed to cut output by half of that ambitious number, reducing production by 300,000 barrels.

“The agreement is contingent on key non-OPEC countries agreeing to also cut oil production by 600,00 barrels a day,” NPR’s Jeff Brady reported. n.pr/2glzFfE

The deal will take effect on January 1st, 2017. This could lead to a great first quarter start for oil markets worldwide.

Sources:

http://www.npr.org/sections/thetwo-way/2016/11/30/503863756/opec-agrees-to-first-cut-in-oil-production-since-2008?utm_source=twitter.com&utm_campaign=npr&utm_medium=social&utm_term=nprnews

https://www.bloomberg.com/news/articles/2016-11-30/opec-decision-day-as-ministers-meet-to-salvage-deal-on-oil-cuts

http://www.reuters.com/article/us-opec-meeting-idUSKBN13P0JA

https://www.dailyfx.com/crude-oil