Historic output cut deal ‘boon for all OPEC producers’
KHALIL HANWARE | Published — Thursday 1 December 2016
JEDDAH: Oil prices soared 10 percent on Wednesday to the highest in a month as the Organization of the Petroleum Exporting Countries (OPEC) agreed to curb production for the first time since 2008.
After tough talks in Vienna, OPEC agreed to lower monthly oil output by 1.2 million barrels per day (bpd) to 32.5 million bpd.
The decision will be a “boon for all OPEC producers,” including Saudi Arabia, said John Sfakianakis, director of economic research at the Riyadh-based Gulf Research Center.
“It’s very positive, because it’s a psychological booster, but also eventually a revenue booster for the state,” he told Arab News.
But Jason Tuvey, Middle East economist at Capital Economics Ltd., said: “The agreement is unlikely to have a significant economic impact on Saudi Arabia. Moreover, we don’t think it represents a major shift in the Kingdom’s oil policy.”
Tuvey told Arab News: “There remain concerns about compliance and the role of non-OPEC producers in the deal.”
Russian Energy Minister Alexander Novak, however, confirmed that Moscow was ready to cut its own oil production by 300,000 barrels a day next year, provided the OPEC decision is “upheld.”
The 10 percent leap in oil prices boosted the Saudi stock market, with the Tadawul All-Share Index (TASI) climbing to its highest level this year. TASI jumped 1.5 percent to 7,000 points.
Sfakianakis also said: “This is a monumental decision that demonstrates to those who doubted OPEC’s ability to take an important decision to cut output. For Saudi Arabia, it is a significant confidence booster for the market as well as over the medium term, the state’s revenues and overall psychology.”
He added: “We should continue to see a market rally as volumes are picking up and investors are returning into the market given the very positive news.”
James Reeve, deputy chief economist and assistant general manager at Samba Financial Group, said: “We see prices averaging about $52 per barrel next year.”
Energy, Industry and Mineral Resources Minister Khalid Al-Falih said ahead of Wednesday’s meeting in that Saudi Arabia was prepared to accept “a big hit” on production to get a deal done.
“I think it is a good day for the oil markets, it is a good day for the industry and… it should be a good day for the global economy. I think it will be a boost to global economic growth,” the minister was quoted as saying by Reuters after the decision.
According to Reuters, Iran — which has long argued it needs to regain market share lost under Western sanctions — was allowed to boost production slightly from its October level.
OPEC will lower its monthly output from January 1, Qatar’s energy minister and president of the OPEC conference said.
“This is a major step forward and we think this is a historic agreement, which will definitely help rebalance the market and reduce the stock overhang,” Mohammed Bin Saleh Al-Sada told a news conference.
He also said that the deal will help global inflation accelerate to a “more healthy rate”, including in the US.
According to an OPEC statement, Saudi Arabia will reduce output by 486,000 bpd from October levels to 10.1 million bpd. Iraq will cut by 210,000 bpd to 4.4 million bpd and the UAE by 139,000 to 2.9 million bpd.
It finalizes a preliminary deal struck in Algeria in September, when OPEC agreed to cut production but left the details to clear up later.