OPEC backs 6-month oil production cut package

OPEC backs 6-month oil production cut package

It was always going to be a tough meeting for OPEC in Vienna this month, but few thought it would be that hard.

Prices fell nearly 3 percent on Thursday after OPEC ended a meeting in Vienna with only a tentative deal to tackle weak prices.

US drillers this week cut oil rigs by the most in over two years, after adding rigs in recent weeks. It went down to the wire.

Against this backdrop, OPEC faced a particularly thorny challenge: Cutting too much and supporting prices at too high a level would risk curbing demand and supporting USA production expansion; and reverting to a market share war would risk another price collapse, with the attendant collateral damage to producing economies. West Texas Intermediate and global benchmark Brent crude oil futures finished higher last week, helped by the news that OPEC along with other major exporters including Russian Federation reached an agreement to reduce production in an effort to curtail supply and stabilize prices.

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Two hard decisions for the cartel and its allies, known as OPEC+, are the quantity supply cut and how members of the group will divide the amount of oil cuts among themselves. With the world pumping about 1.2 million more barrels every day than it consumes, "they have to tighten the market". While Iranian exports are now down, they will increase again in the New Year when the waivers for the eight countries come into force.

Earlier it was reported that the monitoring Committee of the OPEC have reached consensus on the reduction of oil production. The stakes were high given the excess supply the market faces in 2019. Possible trade wars between U.S. Mr. Falih said Saudi production had dropped to 10.7 million bpd in December from 11.1 million in November and was set to decline to 10.2 million bpd in January.

"A combined reduction of 1.5 mbpd was needed to avoid a supply surplus in the first half of next year", he told AFP.

Markets will therefore benefit from decisive action by OPEC+.

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The outcome of the OPEC meeting will disappoint Donald Trump.

The world's major oil producers have agreed to slash production after meeting in Vienna - in the hopes of getting prices up again. The other question was where the baseline should be: November 2018, when most producers pumped at record levels, or an earlier date? Traders were looking for the cuts to fall between 1.0 million and 1.4 million barrels per day.

Given supply due to come online, some analysts and market participants said the cut may not be sufficient to end oil's rout.

Aside from its importance for oil market, the G20 summit was going to be a test for the Saudi crown prince since it was his first appearance on the worldwide stage since the Khashoggi incident. This makes sense in light of the newfound might of U.S. oil production. Russian Federation also agreed to join the proposals, a delegate said.

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