Non-OPEC Nations Agree To Cut Oil Production But Many Questions Remain

Tyler Durden's picture

Non-OPEC oil-producing nations struck a deal in Vienna on Saturday to cut crude output by 600,000 barrels a day, joining a pact meant to reduce a global oversupply of crude, lift prices and lend support to economies hurt by a two-year market slump.

The pact, the first between the two sides in 15 years, comes two weeks after OPEC agreed to reduce its own production by 1.2 million barrels a day.

If complied with, and that is a big "if" since many of the non-OPEC nations had previously expressly stated they would not actually cut but rather let oil production decline naturally, the deal would amount to a reduction of almost 2% in global oil supply and, as the WSJ notes, "would represent an unprecedented level of cooperation among oil-producing countries."

Prior to today's announcement, Russia had already announced it plans to reduce production by 300,000 barrels a day next year, down from a 30-year high last month of 11.2 million barrels a day. In a surprise move, Kazakhstan pledged a modest output cut after coming under strong diplomatic pressure, delegates said, Bloomberg noted. The International Energy Agency expected the Asian nation to boost production in 2017 by 160,000 barrels a day after a giant oilfield started pumping.

“I’m sure you are following the news about actual notifications to the customers by a number of countries notably Saudi Arabia," Saudi Oil Minister Khalid Al-Falih said ahead of the meeting. "It should be a continuation of the positive spirit of cooperation and collaboration between OPEC and non-OPEC.”

Still, despite the trumpeted headline, there was little detail and it remains unclear whether the non-OPEC cuts include natural declines from countries such as Mexico, or consist entirely of genuine production cuts.  "We managed to gather 25 countries from OPEC and non-OPEC with the idea of stabilizing the oil market and defending a fair price for our commodity," Venezuelan Energy Minister Eulogio del Pino said before the meeting.

The breakdown in proposed reduction by non-OPEC country is as follows:

  • Azerbaijan to cut 35,000 barrels a day
  • Bahrain to cut 12,000 barrels a day
  • Bolivia to cut 4,000 barrels a day
  • Brunei to cut 7,000 barrels a day
  • Equatorial Guinea to cut 12,000 barrels a day
  • Kazakhstan to cut 50,000 barrels a day
  • Malaysia to cut 35,000 barrels a day
  • Mexico to cut 100,000 barrels a day
  • Oman to cut 45,000 barrels a day
  • Russia to cut 300,000 barrels a day
  • Sudan to cut 4,000 barrels a day
  • South Sudan to cut 8,000 barrels a day

Indonesia, which until recently was an OPEC member (having returned in 2015) but mysteriously was suspended from the cartel during the November Vienna meeting, did not figure in the negotiations.

As the WSJ notes, representatives from a number of countries met Saturday morning for a breakfast and then headed to OPEC’s headquarters in central Vienna where they hashed out an agreement.

Securing a coalition beyond their own cartel has become important for OPEC officials as the rise of American oil producers has put them on the defensive. OPEC worries that any increase in oil prices following a cut in production will eventually lead U.S. output to flood back into the market and dilute the cartel’s actions without help from Russia and others.

The hard part has been hammering out the details of any such agreement, including how long the production cuts should last, how to enforce the pact and what production statistics should be used as a baseline number. In order to "enforce" compliance, Russia and Oman - the only two nations which have explicitly stated they will cut production instead of waiting "natural" production declines, will join OPEC members Algeria, Kuwait and Venezuela on the committee to oversee implementation of the accord, a delegate said.

Alongside recent oil supply records by many non-OPEC nations, most notably Russia, OPEC production reached an all-time high of nearly 34.2 million barrels a day, well above the group’s target of 32.5 million barrels a day from January.

Libya and Nigeria are exempted from the OPEC output cuts, while Iran has some room to boost its output. All three nations are ramping up their own production aggressively and will make hitting OPEC's reduced production goal that much more unlikely.

As Reuters reported late in the week, Saudi Arabia informed customers in Europe and North America that it would supply less oil in January than December. The United Arab Emirates said on Saturday that it will take similar action. The production cuts, however, come at a time when most OPEC nations announced January selling prices at steep discounts to market as the scramble to capture even market share accelerates and jeopardizes any deal with the incentives to cheat particularly high. Furthermore, the selling price discounts suggest that there has been a far steeper than expected decline in oil demand, mostly out of China and India, suggesting that OPEC's 32.5mmbpd production target could be too high.

Finally, the biggest wildcard in the oil production equation, US shale producers, were completely absent from any negotiation. As reported yesterday, for the 25th of the last 27 weeks, Baker Hughes reported that the US oil rig count rose once again. And with the biggest rise (+21) since April 2014 to 498, the highest since January 2016...

 

... the jump in oil rigs signals that US shale production is set to rise dramatically in the months ahead, pouring cold water over OPEC and Saudi production cut hopes.

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BritBob's picture

What about the oil around the Falkland Islands?

Regarding Falklands oil exploration, Argentine Foreign Minister Jorge Taiana stated in February 2010, that his Government would take 'all measures necessary to preserve our rights' and also reiterated that Argentina had a 'permanent claim' on the islands, saying 'Buenos Aires would complain to the UN over the oil project and might take the case to the International Courts of Justice in the Hague.' (British Drilling for Falklands Oil Threatens Argentine Relations, Pope F. 13 Feb 2010 & Potential Drilling off Falklands Provokes Tensions Between UK & Argentina IRRU News 17 Feb 2010)

Hm...Seems to be taking a long time preparing a case. I wonder why?

Falklands – Territorial Waters: https://www.academia.edu/10574593/Falklands_Islands_Territorial_Waters

 

 

 

 

 

BullyBearish's picture

Welcome to Corruption 101..."How to Raise Prices on a commodity when the supply is rocketing and demand falling"

Looney's picture

OPEC and non-OPEC countries “cut” production by increasing the output. Are they:

<<<   Doing Meth?

<<<   Doing Math?

Looney   ;-)

BullyBearish's picture

It's really about the banks holding all of the energy debt staying "solvent"...

cheka's picture

peak oil....what a scam

millions of dinosaurs pumped out of the ground every.frikkin.day

wwzmach's picture

Google for abiotic oil... think into it logically. Juipter and Saturn are practically made of methane the most basic hydrocarbon. On Titan it has a climate like earth does with water only of liquid and frozen methane complete with weather systems and liquid methane rain. Oil or more accurately gasoline is just 8 methane molecukes joined together. Add a little heat and pressure what happens to methane -> octane. Hmmmm.... Also think into the planet one of the most common sedimentary rocks is limestone aka. Carbonate.... heat that up with water... add pressure carbonate + water -> hydrocarbon.

Why is oil in such abundance near critical geologically active zones ? Its coming up from the mantle. Sure some dinosaur mulch too but probably generated in the upper mantle non organically. Russians knew this long time ago. It was squashed and ridiculed but makes a lot of sense.

wwzmach's picture

Google for abiotic oil... think into it logically. Juipter and Saturn are practically made of methane the most basic hydrocarbon. On Titan it has a climate like earth does with water only of liquid and frozen methane complete with weather systems and liquid methane rain. Oil or more accurately gasoline is just 8 methane molecukes joined together. Add a little heat and pressure what happens to methane -> octane. Hmmmm.... Also think into the planet one of the most common sedimentary rocks is limestone aka. Carbonate.... heat that up with water... add pressure carbonate + water -> hydrocarbon.

Why is oil is such abundance hear critical geologically active zones ? Its coming up from the mantle. Sure some dinosaur mulch too but probably generated in the upper mantle non organically. Russians knew this long time ago. It was squashed and ridiculed but makes a lot of sense.

Professors in petroleun were openly discussing this in the early 90s but it was a taboo subject and theu could be backballed by oil companies if they went public.

http://www.viewzone.com/abioticoilx.html

_ConanTheLibertarian_'s picture

We are in the twilight zone remember.

de3de8's picture

Pretty simple I think, tell everyone your going to cut production, price goes up, everyone cheats to reap the rewards. Won't last, too many players.

wwzmach's picture

Its $100 a barrel for real deep water down there.

SallySnyd's picture

Here is one of the key supply factors that will impact the price of oil in the future:

 

http://viableopposition.blogspot.ca/2016/11/the-wolfcamp-shale-and-ameri...

 

Given that the global economy is weakening, this increase in domestic oil supplies  could have an even more negative impact on prices in the near future.

nevadan's picture

Maybe,  maybe not.  When the USGS gives out "technically recoverable" estimates they exclude any economic estimates.  If it will cost $200/bbl to produce it is the same as not being there.

two hoots's picture

Hyperbole.    Like trying to get panners and miners to slow production in the Caly gold rush. 

Normalcy Bias's picture

So, a bunch of chiselers that can't even trust one another met and agreed to produce less of a commodity, so they'd all benefit from a temporary price increase? OK!

DeathMerchant's picture

I look at the list of countries that are cutting productin and with the exception of one or two, I see countries that would be mere goat herders or dirt farmers like they have always been were it not for oil money. Try as they may, humans will never get mother nature to alter her evolutionary course. The genetics are set which might explain the push for multiculturalism.

jmack's picture

sub $15 oil within 5 years.

gregga777's picture

Per the Hills Group analysis:

"Depletion: A determination for the world's petroleum reserve
An exergy analysis employing the ETP model" at:

http://www.thehillsgroup.org/petrohgv2.pdf

Graph #31 in their analysis shows oil won't exceed about $55 per barrel in 2017 and $12.50 per barrel in 2020 and dropping. The presence of skew in the logistics curve could shift those estimates 5 years into the future (I.e., $55/bbl in 2022 and $12.50/bbl in 2025). We will see.

ThanksIwillHaveAnother's picture

Whatever OPEC-Related cut the Shale Play will replace as prices go higher then back down.  Who are the front-runners???

gregga777's picture

Venezuela has reduced (not necessarily voluntarily) oil production by around 500,000 barrels per day since 2014. Lot of good it did them. But, the KSA (Kingdom of Saudi Arabia) sure appreciates Venezuela's sacrifice.

gregga777's picture

Definition of OPEC: Organization of Petroleum Exporting Cheaters.

wwzmach's picture

Hey... how do you fancy flying out to vienna in your private jet for a giant pissup in a five star hotel with high class hookers caviar and champagne in every room. We're all going broke any way sonwe might as well enjoy it and put on a serious show tobsqueeze a quick $5 pop out of the market for 1-2 months.

 

Same thing happened with coal... huge panic - shortages and etc. Now coal is cheaper than sand. Before coal firewood was going to 'run out'.

 

wisehiney's picture

Texas gonna bust y'alls ass.

QEpp's picture

Of course they'll say that they'll cut production.  Doesn't mean that they actually have to...how will production quotas be enforced?

wisehiney's picture

ptb desperately trying to keep oil up.

Improving economy and inflation narrative doncha know.

Doing the same thing with interest rates.

Notice short rates lagging long rates.

Who do you think you are fooling?

It is a bitch at the zero bound.

Pushing on a string.

FrankDrakman's picture

Geezus, can no one do simple arithmetic? The first bar on the chart (2000) shows OPEC at 32 million barrels, non-OPEC about 45, or about 3:2 ratio non-OPEC/OPEC. The last bar shows non-OPEC about 58, and OPEC about 39, again a 3:2 ratio non-OPEC/OPEC.

How the fuck does this support the headline that OPEC's share is going down?!

I never trust a single fucking number I see in headlines. These people are idiots.

Atomizer's picture

Imagine super tanker's aren't getting paid to store crude on ocean. Ask about this correlation some days back. 

Biggest Oil Tankers Overview - Vessel Tracking

Oil traders to store millions of barrels at sea as prices slump | Reuters

5 Year Crude Oil Prices and Crude Oil PriceCharts - InvestmentMine - InfoMine

List of Publicly Traded Crude Oil TankerCompanies | InvestSnips

 

Enjoy. It's a fake news drive to Christmas. Ram up petrodollar to complete better earnings report. The jackass's are going to raise pump gasoline prices to create a Hoax. Meanwhile, ship in from ocean holding. 

Atomizer's picture

These Wallstreet executives must of been hand picked as special needs children who reproduced within the family. 

/LOL

Atomizer's picture

Tyler, 

Need a favor. List all existing fracking companies on Wallstreet. Show me the new IPO's.

Then I can link K-street lobbyists working with house, senate, and congress. The payback will become a windfall to their termination. We don't accept foreign money to expand a Brussels narrative. Want to catch them creating fraud. 

Thanks Tyler. In case I forget, Merry Christmas and Happy New Year. 2017 is going to be wild. We can handle it. 

rickv404's picture

3 dollar plus a gallon for gas here we come. But it's not about cutting production. It's about inflation. Inflation to pay for Trump's trillion dollar boondoggle a.k.a. infrastructure billl. Why would you cut production unless your sales were first being cut? Absurd.

sinbad2's picture

Ever noticed how the US is never mentioned?

The US is one of the largest oil producers(8-9Mbpd), but never takes part in the negotiations to cut production.

The reason that production cuts will not happen, is the US ups production the moment the price goes above $50. If the price was to go above $60, all the offshore US wells would also ramp up production.

If you look at the cost of production, it's obvious that Russia and most ME oil is still a viable business at $30 a barrel, but a lot of countries, including the US would lose money at that price.

https://marketrealist.imgix.net/uploads/2016/01/total-cost-of-producing-...

 

Russia has actually increased production since the US crashed the oil price, and as the US also crashed the ruble, the Russian oil companies are making record profits.

https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iEVMABHCblNE/v2/-1x-1.png

 

Why would Russia want to help the USA?

Sapere aude's picture

sinbad2

The ME oil is viable at $7 a barrel, its the social costs that push it up.

 

Shale is a non entity, its complete rubbish to talk of shale producers coming on line at $60, because at $60 NONE of the shale companies ever got near to making a profit. Yes, they refinanced at ZIRP or NIRP, they sold assets to boost accounts, they sold more stock even to pay dividends....but what they didn't do was make profit on shale oil, and that was when they were working the sweet spots, which in the 'major' fields such as Eagle Ford, are all drilled out.

The Saudis agreed to a slight of hand with the U.S. and other allies, to try to pretend there was an oil glut, ably assisted by ZH and others producing dodgy pictures showing ships where the picture was attributed first to oil tankers full of oil in Iran, then using the same picture to suggest they were off Galveston queuing up....even though half of the ships were not even oil tankers, and over half were empty, as someone forgot about the plimsoll line!

There is no glut of oil, never was and never will be, because cheap oil is not only in decline, it has been for 15 years. Don't believe me....then check for yourselves?

Originally only sweet oil was pumped and counted, but that changed and since then the majority of the world's oil production is 'sour' oil, something that would never have been used or even drilled for years ago.

You don't do that because there is so much of it!

Then we have the ponzi shale. An idea based not so much on economics as fraud, both against stockholders and against economics where it was and is impossible for wells that decline by 70% in the first year to ever have profitable oil unless oil is around $120.

You had dodgy stories, including here about the wonderful technical advances that had made shale oil profitable at $30....YET companies went bust leaving billions of debt. Not one shale company ever showed a profit on shale oil production, not one. They were all propped up by slight of hand.

The technical advances suggested had been around for decades, i.e. frakking, and the main advance is a double edged sword, i.e. pad drilling.

Pad drilling is what boosted production, enabling several wells to be drilled from the same platform, but those advances are in the system, but still failed to make it profitable and even contribute more to the impossibility of shale to ever make a profit in a low oil price environment.

WHY? Because by increasing the number of wells brought on line by pad drilling, you are increasing the use of the sweet spots, and increasing the legacy wells, and because shales decline at extraordinarily high percentages (around 70%), pad drilling exacerbates the problem, but hides it because initially pad drilling brings more wells on line in the sweet spots, and is reported before the production declines kick in.

For example drill 10 pads of 6 wells, initially you have a quick 60 wells producing 1000bbls a day, 60,000total, but that has still used up 60 well locations in sweet spots, but worse, within 6 months that production from those 60 wells is down to 30,000bbls a day, so you then have to find more sweet spots, more pads. You need another 5 pads of 6 wells just to keep production constant and even then its a hiding to nothing, because the day those are on line, you then have depletion on the 90 wells, and another 6 months you have a decline of 50% on the new wells, and another 20% on the legacy wells....RED QUEEN SYNDROME.

If anything shows how there is and never has been an oil glut its the fact we even tried shale oil production, as it was last chance saloon for hydrocarbon production keeping up with demand.

 

Oh yes, you get sites like this telling everyone about silver and gold manipulation and no one bats an eyelid, but then the same punters all think the all production 'glut' is real!!!

You get sites like this then telling everyone about the extraordinary inventories worldwide....but negating to mention that these inventories are a legal requirement in most countries of the world to keep 100 days supply of oil, and as their oil use has increased obviously their inventories increase because of the legal requirement.

You don't see any mention of the massive discrepancy in the EIA figures, where the US uses around 18,500,000-19,000,000bbls daily, yet combining the US production of around 8,000,000 to its increased import of 8,000,000 still leaves a black hole of 2,500,000 to 3,000,000bbls a day coming out of thin air!

No one mentions the Saudi's and other U.S. allies NOT AUDITING ANYTHING. Not auditing their production, their export, their depletion etc. etc., and as an example the Saudi's suggest that their resources are the same as they were 50 years ago, after pumping billions of bbls out, with no depletion....A COMPLETE IMPOSSIBILITY!

They don't mention their super giant fields that the world relies upon are completely knackered, so much so that they are all now subject to enhanced oil recovery techniques, such as waterflooding, and that's only done in the twilight years of a field's life.

Iran was brought back into the fold for one thing and one thing only...to bolster oil supplies, but even that won't work as the Iranian fields are also super mature fields, and the FACT is the world has not been replacing resource or anywhere replacing resource for 20 years.

The rush to issue stories about RENEWABLE this or renewable that are completely erroneous to try to hide the fact that it is out of necessity as world oil production IS NOT ABLE TO BE kept at its present level, let alone its forecast requirement.

98,000,000bbls a day, and even allowing for 10% depletion leaves a hole of 9,800,000million barrels a day

 

This slight of hand to keep oil price low whilst increasing stockpiles will soon hit the fan as countries realise they have been played....the saudi's already know it, its only a matter of time before $150 oil