Oil surges after OPEC and Russia agree to production cut

  • OPEC+ and Russia have agreed an output cut to crude oil, sending prices surging after a week of uncertainty.
  • Brent crude rose as much as 5.4% after OPEC agreed to an output cut of 1.2 million barrels a day collectively in Vienna Friday.
  • Oil prices had been volatile all week as OPEC weighed supply concerns with demands from President Trump to keep prices low.

OPEC+ has agreed to cut production by 1.2 million barrels, reducing tensions around crude oil prices after two days of fractious discussion in Vienna. Brent Crude was up 4.8% as of 2.40 p.m in London (9.30 EST) on the news.

Oil prices had previously been volatile on news that Saudi Arabia would try to manage the extent of the cuts so as not to shock markets and put further strain on its relationship with the US following the death of Jamal Khashoggi.

Brent prices tumbled more than 30% since an October high of $US87, but now sit at $US62.94. Talks had been fractious after Russia and Saudi Arabia disagreed about the extent of cuts with President Vladimir Putin previously stating that lower prices were “absolutely fine.”

“We recognise the agreement reached as highly positive, as it outpaced the market expectations of 1 million barrels per day following the latest guidance. Now we think that with such limited supply we can see the opposite picture next year (i.e. oil deficit on the market) which may bring prices to a new maximum by mid-2019,” said Kirill Tachennikov, senior oil and gas analyst at BCS Global Markets.

Similarly, US President Donald Trump had signalled that he wanted oil prices to stay lower despite US inventories currently standing at high levels. The US now exports more oil than it imports following the shale revolution.

OPEC members will make up 800,000 barrels a day of the cut with Russia taking the remaining amount. Analysts had previously expected a cut of between 1.1 and 1.4 million barrels a day. OPEC has been under greater scrutiny in the last week after Qatar decided to quit the cartel – effective January 1 – after 57 years of membership.

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