OPEC and its allies agree to further cuts in production to support oil prices

OPEC, Russia and other oil producing countries have agreed to further cuts in production in an attempt to support crude oil prices in the face of an abundance of supply looming, mainly due to the booming US production.

Following a meeting in Vienna, OPEC said on Friday that the producing group would cut supplies by an additional 500,000 bpd, bringing the total cuts to 1.7 million bpd.

The Kingdom of Saudi Arabia and its allies, led by the Kingdom of Saudi Arabia, have been restricting their production since 2017. Their current agreement aims to remove 1.2 million barrels per day from global markets and is due to expire in March 2020.

The OPEC statement did not mention extending the cuts until June or even December 2020, as some analysts expected. However, oil markets were supported by news of additional cuts and pushed US crude oil prices up 0.8% to $ 59 a barrel.

OPEC said, “This additional adjustment would be effective as of 1 January 2020 and is subject to full conformity by every country,”

Reuters reported that OPEC countries will bear 340,000 barrels per day of new cuts, while other producers take the remaining 160,000 barrels per day.

The restrictions imposed by OPEC and Russia have largely succeeded in supporting prices, although they are still well below the level of $70 a barrel reached in October 2018. The problem is that non-OPEC countries, led by the United States, continue to increase production.

Oil production from non-OPEC countries is expected to increase by a record 2.3 million barrels per day in 2020, according to the consultancy Rystad Energy. This would easily exceed the previous record of 1.96 million in 1978.

Saudi Arabia, the largest producer in OPEC so far, is doing a lot of heavy lifting to limit supply. It produces less than OPEC’s share in most of this year.

The current oil price is especially important for Riyadh because Saudi Arabia is about to list shares in the government oil monopoly, Saudi Aramco, for the first time.

Saudi Aramco said on Thursday it had sold 3 billion shares at 32 riyals ($8.53) per share in its initial public offering. The public offering raised $25.6 billion, surpassing the initial public offering of China’s Alibaba in 2014, becoming the largest in history.