During the 171st meeting of the Organization of the Petroleum Exporting Countries (OPEC), the group reached a decision to cut oil production by 1.2 million barrels per day to 32.5 million.
According to OPEC, the group took note of oil market developments since it last met in Algeria and reviewed the oil market outlook for the remainder of 2016 and 2017. It observed that global economic growth forecasts were reasonable for both 2016 and 2017, at 2.9% and 3.1% respectively; that non-OPEC supply is expected to contract by 0.8 million barrels per day (mb/d) in 2016, before returning to growth of 0.3 mb/d in 2017; and that world oil demand is anticipated to grow at healthy levels of around 1.2 mb/d in both 2016 and 2017.
Bloomberg reports that after weeks of often tense negotiations, OPEC’s three biggest oil producers, Saudi Arabia, Iraq and Iran, resolved differences over sharing the burden of cuts. The news source says that Iran will be allowed to raise production to about 3.9 mb/d, Saudi Arabia will cut production to 486,000 barrels a day, and Iraq will reduce output by 210,000 barrels a day.
“This should be a wake-up call for skeptics who have argued the death of OPEC,” Amrita Sen, chief oil analyst at Energy Aspects Ltd, told Bloomberg, adding, “The group wants to push inventories down.”
The Wall Street Journal writes that a deal to cut more than 1 million barrels a day could keep prices steadily above $60 a barrel by the first quarter of 2017, per London-based Energy Aspects, which would “accelerate the end of a glut that has been slow to come for more than two years after the development of shale drilling and oil-sands production in North America.”