Oil prices jump on OPEC and non-OPEC deal to cut crude output

By Azernews

By Nigar Abbasova

The world energy market was pushed toward reaching a balance following the struck of a landmark deal between OPEC and non-OPEC producers to curtail oil output jointly and ease a global glut.

Crude prices reached their highest levels in a year and a half on December 12 jumping by almost 4 percent, as a result of the deal, which became the first since 2001.

International benchmark Brent futures for February delivery soared to $57.89 per barrel, while U.S. West Texas Intermediate (WTI) stood at $54.51 a barrel hitting a July 2015 high.

The group agreed to slash output by 1.2 million barrels per day starting from January 1, with the contribution of the top exporter and OPEC’s de facto leader Saudi Arabia standing at 486,000 bpd.

 The country is expected to shoulder the bulk of supply reductions, while the fact that Nigeria and Libya were exempt from the deal due to production-denting civil strife is assessed by market watches as a factor that will further put the brunt of reductions to Riyadh.

Producers outside the cartel agreed to reduce output by 558,000 bpd, short of the initial target of 600,000 bpd but still the largest contribution by non-OPEC ever.

Russia, one of the major non-OPEC players of the market is also expected to perform real output reductions, curtailing output in line with its pledge of 300,000 bpd.

Apart from Russia, the talks on December 10 were attended by or had comments or commitments sent from non-OPEC members Azerbaijan, Bahrain, Bolivia, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan and South Sudan.

Azerbaijan `s Energy Minister Natig Aliyev, commenting on the results of the meeting said that the oil-rich country will cut its oil output by 35,000 barrels per day, saying that OPEC member countries and states outside the cartel agreed to meet regularly to ensure the continued oil market price stability.

Industry sources said Oman and Kazakhstan had yet to inform their foreign partners on joint oilfields about possible output cuts. OPEC producers Iraq, Kuwait and the UAE have also told buyers of their crude about planned reductions.

The key thing to watch for the market is now the action of individual players and their compliance to production quotas, as there is no legal binding to deter producers inside or outside the cartel from moving aside of their pledges.