The Organization of Petroleum Exporting Countries agreed on Wednesday to a modest oil output cut of 700,000 barrels per day, in an effort to boost prices that have plummeted from above US$100 a barrel in 2014 to under $50 a barrel on Thursday.
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Just days after OPEC agreed the framework for its first production cut in eight years, initial estimates of the group’s output this month show the potential bind faced by its most powerful member.
OPEC ministers said they would reduce output to 32.5-33 million barrels per day, down from its current estimated level of 33.24 million. However, numerous details of the production cut deal are still being worked out by member countries and the group won’t decide on targets for each country until its next meeting at the end of November 2016.
Oil prices were flat in Asian trade after a surprise OPEC deal to limit output, as skepticism mounted over how the oil cartel would enforce the cut.
But analysts said economic pressure from falling oil revenues pushed Opec members to reach a deal, while others warned the oil cartel has a poor track record of fulfilling such commitments, and traders are not sure if Saudi-Iran cooperation would hold.
The United States, a non-Opec country that is now the world’s biggest oil producer, said it had little faith in this week’s deal leading to higher prices in the long term.
Brent crude futures were up $1.06, or 2.2 per cent, at $49.75 in European trading. “It has quickly dawned on many that OPEC’s change of strategy may not be a panacea for the global oil glut”.
Paul Horsnell, head of commodities research at Standard Chartered, said what was significant was Saudi Arabia’s return to a price-defence stance from market share protection. The price of crude, which shot up about 5 percent on Wednesday’s news, edged back slightly.
But, this is when problems with OPEC’s plans start and why so many don’t think this agreement means much of anything.
OPEC will now talk with other producers – such as Russian Federation – and negotiate how much less they will pump.
Oil will need to hold above $50 a barrel for months before US companies commit to more spending, according to analysts at firms including S&P Global Platts and Oppenheimer & Co.
Crude prices plunged, and in January of this year fell below $30 for the first time in more than a decade.
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Maduro said he is convinced that there will be “a stable oil market” if OPEC and non-OPEC countries pledge to cut production.
