Washington Examiner — OPEC agreed on Friday to an oil production cut of 1.2 million barrels per day in an effort boost falling prices, defying President Trump’s demands.
The deal came together on the second day of talks in Vienna after non-member Russia agreed to cuts, with OPEC providing most of the output reduction — 800,000 barrels per day — the oil cartel announced in a press conference.
The cut will begin in January, lasting for six months before the group reviews whether to continue forward after that.
A deal had been uncertain because Russia was resistant to joining OPEC in making cuts, as energy companies there are benefiting from the country’s highest output ever.
Russia has emerged in recent years as a key oil market player, forging an alliance with Saudi Arabia, OPEC’s leading producer.
OPEC’s 15 members produce about 40 percent of the world’s oil, even as the U.S. has become the world’s biggest producer because of the shale boom.
Oil prices have fallen more than 30 percent since October, when it breached $85 per barrel, after Saudi Arabia and Russia, the top two oil producers outside the U.S., began boosting output partially in response to complaints from Trump.
Trump worried about rising prices ahead of the midterm elections, and the potential damage to supply from his renewed sanctions on Iran’s oil exports.
Before recently raising oil output, OPEC and Russia had implemented an agreement to cut production for 18 months.
Now, the world has a glut of oil supply because of the severe reaction by Russia and the Saudis to cover for Iran losses, which did not materialize as feared after the Trump administration granted exemptions allowing some countries to continue importing crude from Tehran.
To be sure, other factors contributed to the oil price drop, such as over-abundant supply, including prolific output from U.S. shale producers.
In addition, analysts have said the oil price fall can be partially attributed to fears of sluggish global economic growth due to Trump’s trade wars.
The new agreement could draw a reaction from Trump, who as recently as Wednesday prodded OPEC to continue pumping more oil to keep prices low. Trump believes he has leverage over Saudi Arabia because of his willingness to stand by the Kingdom after it killed journalist Jamal Khashoggi, provoking international outrage.
Saudi Arabia’s energy minister Khalid al-Falih had met with U.S. special envoy Brian Hook Wednesday on the sidelines of the Vienna meeting, where the two discussed OPEC’s plans, and how American sanctions on Iran are affecting the oil market.
Al-Falih said Friday the deal will be good for America.
“Low prices are not good for the U.S. economy,” he said during the press conference in Vienna. He also offered praise to Trump for paying attention to costs on consumers from higher oil and gas prices.
“We honor him for his focus on the American consumer and I hope all developed countries do the same. We share that interest in keeping energy affordable.”
Some oil analysts agreed that Trump should be cheering the OPEC deal to limit production. Lower prices could harm an important Trump constituency: The energy industry and states that rely on fossil fuel production.
“A lot of Trump supporters in the U.S. oil patch will be very happy with OPEC’s decision,” Antoine Halff, a senior research scholar with the Center on Global Energy Policy at Columbia University, told the Washington Examiner. “This is as good an outcome as OPEC could hope for. Ultimately it is also in the U.S. interest not to have too low a price, since depressed markets choke off investment and are a recipe for price spikes later on.”
by Josh Siegel | Washington Examiner