JAKARTA (TheInsiderStories) - Organization of Petroleum Exporting countries (OPEC) finally cut production for the first time since 2008 in order to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward.
Production cuts are set 1.2 million barrels to 32.5 million barrels per day effective Jan. 1, 2017 and it expects producers from outside the group, including Russia, to join with additional cuts totaling 600,000 barrels a day.
According to the statement, Iraq agreed to reduce production by about 200,000 barrels per day from the current state to 4.5 million barrels per day. Meanwhile, Iran, according to the source, will maintain their current production of 3.15 million barrels per day.
Minister of Energy and Mineral Resources Ignatius Jonan said on the meeting Indonesia has expressed to temporally suspended its membership in OPEC because it did not agree with pruning.
The decision have been made at 171st Meeting of the Conference of the OPEC was held in Vienna, Austria, on Nov. 2016, under the Chairmanship of its President Mohammed Bin Saleh Al-Sada, Minister of Energy and Industry of the State of Qatar, said the organization in a press statement.
“Consequently, the recovery of oil market balance could be addressed through dialogue and cooperation among producing countries as a way forward for cohesive, credible, and effective action and implementation,” He said.
He added, the agreement followed is the fulfillment of the implementation of the Algiers Accord, 171st Ministerial Conference on Sept. 28, 2016. The duration of this agreement is six months, extendable for another six months to take into account prevailing market conditions and prospects.
After the OPEC meeting, crude for January delivery climbed US$4.21, or 9.3 percent, to settle at $49.44 a barrel, on the New York Mercantile Exchange. While, Brent crude gained $4.09, or up 8.8 percent to $50.47, on ICE Futures Europe. Both finished at a one-month high.
Other decision
OPEC members agreed to establish a Ministerial Monitoring Committee composed of Algeria, Kuwait, Venezuela, and two participating non-OPEC countries, chaired by Kuwait and assisted by the OPEC Secretariat, to closely monitor the implementation of the agreement.
The Conference also observed that global economic growth forecasts were reasonable for both 2016 and 2017, at 2.9 percent and 3.1 percent respectively, that non-OPEC supply is expected to contract by 0.8 million barrels per day in 2016, before returning to growth of 0.3 million barrel per day in 2017, and that world oil demand is anticipated to grow at healthy levels of around 1.2 million barrel a day in both 2016 and 2017.
But the Conference stressed that OECD and non-OECD inventories still stand well above the five-year average. The Conference said it was vital that stock levels were drawn down to normal levels. OPEC also noted the drop off in investment levels in both 2015 and 2016, as well as the huge layoffs the industry has witnessed in recent years.
It emphasized the importance of continued investments for an industry that needs regular and predictable investments to provide the necessary supply in the medium- and longer-terms.
The Conference also agreed to institutionalize a framework for cooperation between OPEC and non-OPEC producing countries on a regular and sustainable basis. The Conference underscored the importance of other producing countries joining the Agreement.
The Conference elected Khalid A. Al-Falih, Minister of Energy, Industry & Mineral Resources of Saudi Arabia as President of the Conference for one year, with effect from Jan. 1, 2017, and Suhail Mohamed Al Mazrouei, the UAE’s Minister of Energy as Alternate President, for the same period.
At the same time, OPEC appointed Estévâo Pedro, Governor for Angola, as Chairman of the Board of Governors for the year 2017 and Wilson Pástor Morris, Governor for Ecuador as Alternate Chairman for the same period.
The Conference decided that its next Ordinary Meeting will convene in Vienna, Austria, on Thursday, May 25, 2017.