Some of the world’s biggest oil producers have agreed on the need to cut production for the first time in eight years, sending crude prices higher by more than 5% at one stage, though they settled lower.
The agreement wasn’t one to cut production – only agreement for the need for an agreement. OPEC decided it wouldn’t release any more details and continue talks until the end of year meeting of the group in Vienna on November 30.
In other words it was a kick the can down the road to avoid a hard decision that might split the group.
Not included in the discussions was the US and its current daily production of more than 8.4 million barrels (down from the peak of more than 9.5 million barrels last December).
After four and a half hours of discussions in Algeria the group (and Russia) reached a consensus that output cuts are needed to help lift prices and rebalance the market. But those cuts will now have to be shared and balanced. The news helped US shares to end the day higher. Our market will be up 40 points this morning.
People at the meeting told news agencies that the cartel was considering cutting production to between 32.5 million barrels a day and 33 million barrels a day—down from August levels of 33.2 million barrels a day.
Just how the production cuts would be achieved remains unclear. The person said a committee would be formed to study how to carry out the cuts and then report to the meeting in Vienna. One suggestion is that Iran will be allowed to lift production to its stated tartget of just over 4 million barrels day (or an extra 4 to 500,000 barrels a day) and the production freeze will then be applied. But that will requirement agree by other hard pressed members to curtail production
In any case the suggestion of an agreement (a bit of a surprise given Iran didn’t want a bar of any deal the day before) saw crude futures prices jump sharply, and then ease.
As a result, November West Texas Intermediate crude added $US1.07, or 2.4%, to settle at $US45.74 a barrel in New York. That was after hitting a high of $US45.89, from an early low of $US44.45.
In London, the November contract for Brent was up $US1.18, or 2.6%, to $US47.15 a barrel. Brent had been up 5% to more than $US48 a barrel.
“It is more likely that a freeze or production limit would be put in place than a cut as countries like Iran, Libya, Nigeria, Venezuela all have plans to increase production,” said John Macaluso, an analyst at Tyche Capital Advisors. “Any type of limit or cap on production at near current levels would not help the global oversupply issue.”
On Wednesday, the US Energy Information Administration reported that domestic crude supplies fell unexpectedly for a fourth week in a row – down 1.9 million barrels instead of the expected 3.2 million barrel rise. Daily production eased a little to 8.460 million barrels.
