Non-OPEC Agree With OPEC For Production Deal

By Arthur Greene December 10, 2016

OPEC and non-OPEC producers on Saturday reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices that overstretched many budgets and spurred unrest in some countries.

With the deal finally signed after almost a year of arguing within the Organization of the Petroleum Exporting Countries and mistrust in the willingness of non-OPEC Russia to play ball, the market's focus will now switch to compliance with the agreement.

Russia, the biggest oil exporter outside the group, alongside 10 other countries such as Mexico, Oman and Azerbaijan on Saturday agreed to reduce their production by 558,000 barrels a day.

The agreement in Vienna is designed to speed the end of the worst oil downturn in a generation by mopping up excess supplies and boost prices, providing some relief to resource-rich nations whose economies have taken a big hit.

Taken together, the first non-OPEC deal since 2001 and the Saudi Arabian oil minister’s surprise comments represent a forceful effort by producers to wrest back control of the global oil market, depressed by record inventories and persistent oversupply.

Oil prices have surged more than 15 percent since OPEC announced it will cut production for the first time in eight years, rising this week briefly above $55, more than double their January low. The price rise has propelled the share prices of energy groups from major companies such as Exxon Mobil Corp. to shale firms such as Continental Resources Inc.

“This is truly a historic event,” Russian Energy Minister Alexander Novak said. ”It is the first time that so many oil-producing countries from different parts of the world have gathered in one room to accomplish what we have done.”

The significance of this deal is not just in the immediate spike in oil prices, but also for OPEC as an organization. Since OPEC allowed unfettered production at the end of 2014, many have called OPEC dead. Today's agreement demonstrates that OPEC is still a strong organization that is relevant in managing the market.

Some experts are skeptical about the details of the agreement on Saturday, as it is unclear whether the pact represents natural seasonal declines or genuine production cuts. Market participants have been equally skeptical of OPEC, which based its reduction off October’s record-high output.

Crude oil rose this week, but finished well off recent highs. The West Texas Intermediate (WTI) benchmark for US crude futures rose 66 cents, or 1.3%, to $51.50 a barrel on Friday. The February contract for Brent climbed 44 cents, or 0.8%, to $54.33 a barrel.
By Arthur Greene December 10, 2016

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