Economic Insightss
Insights | 1 December 2016
OPEC agree to cut oil output by 1.2mb/d
OPEC agreed to cut oil output by 1.2 mb/d (~1.2% of global supply) to 32.5 mb/d by January. The deal, which is
aimed at reducing global inventories, will see most OPEC members, apart from Iran, Libya and Nigeria, cut output by
~4.6% from October production levels
The deal, which is aimed at reducing global inventories, will see most OPEC members, apart from Iran, Libya and
Nigeria, cut output by ~4.6% from October production levels
Iran agreed to cap production at 3.797mb/d, despite wanting to freeze output closer to ~4mb/d. Nigeria and Libya
were exempt from cutting output due to production levels already being hampered by militant violence. The
agreement will be in force for 6 months and potentially extend another 6 months depending on prevailing market
conditions. Non OPEC nations, which include Russia, have also agreed to cut output by 600 kb/d (~0.6% of global
supply), but details over these cuts will likely be known next week when OPEC and non OPEC producers meet.
The agreement is surprising particularly given the division between Iran and Saudi Arabia over the last few days. A
cut in global oil output of potentially ~1.8mb/d by January means markets could move into deficit by 2Q17. We expect
oil prices to trade around US$50 55/bbl next year, but compliance with the accord is still a key downside risk. OPEC
members have previously produced more than their allotted quota.
Full Press release from OPEC
http://www.opec.org/opec_web/static_files_project/media/downloads/press_room/OPEC%20agreement.pdf
Source: Bloomberg
Craig James - Chief Economist (Author)
Twitter: @commsec
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OPEC agree to cut oil output by 1.2mb/d
1 December 2016
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