Oil Rebounds As OPEC Agrees On Bigger-Than-Expected Cut
Oil staged a nice recovery Friday morning thanks to OPEC's proactive stance in stemming the rot the oil market is going through.
What Happened
Following the OPEC and non-OPEC ministerial meeting, the two parties reportedly agreed to cut oil production by a cumulative 1.2 million barrels per day – 0.8 million bpd by OPEC members and 0.4 million bpd by allied producers. This was higher than the widely expected 1 million bpd reduction the market expected.
Meanwhile, reports also suggested Russia has agreed to cut its production by 200,000 bpd.
Iran managed to secure an exemption from production cuts, citing the burden of U.S. sanctions it's already shouldering.
Saudi Arabia, which wields the clout among OPEC members by virtue of it being the top oil producer in the cartel, initially opposed the proposal to exempt Iran.
Russia, which is one of the power centers among the world's oil producers, reportedly brokered the deal following marathon sittings with both sides.
The oil producers will use October production as the benchmark level for implementing the production cuts, and review the decision in April 2019, Bloomberg reported.
Meanwhile, Saudi Arabia has been under pressure from the U.S to maintain status quo with respect to production, given the latter's stance that current weakness in oil price is justified.
Why It's Important
After a solid performance in 2017, the oil market has been in doldrums this year, dragged by waning demand and swelling supplies. The WTI grade of crude oil has lost about 15 percent in the year-to-date period.
The recent decision to trim production could go toward salvaging the embattled oil market at least to some extent.
What's Next
OPEC is going through a transitional phase, as non-OPEC producers, with Russia in the forefront, are now exerting more influence on the oil market. Qatar recently announced its exit from OPEC on the pretext of it wanting to focus on natural gas. It's feared Iran may also want to exit the union, given the independence it would need to emerge out of the effect of the U.S. sanctions.
Meanwhile, oil market fundamentals are not painting a rosy picture, and it appears that OPEC has a tough act before it to bring about some semblance of sanity in the oil market.
At time of writing, the WTI grade crude oil was higher by 4.51 percent to $53.81.
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