Here Are The Details From The OPEC Production Cut Deal

Update 7: below is the complete OPEC agreement:

AGREEMENT

The global oil market has witnessed a serious challenge of imbalance and volatility pressured mainly from the supply side. It has led to significant investment cuts in the oil industry, which has a direct impact on offsetting the natural depletion of reservoirs and in ensuring security of supply to producers.

Current market conditions are counterproductive and damaging to both producers and consumers, it is neither sustainable nor conducive in the medium- to long-term. It threatens the economies of producing nations, hinders critical industry investments, jeopardizes energy security to meet growing world energy demand, and challenges oil market stability as a whole.

There is a firm and common ground that continuous collaborative efforts among producers, both within and outside OPEC, would complement the market in restoring a global oil demand and supply balance, in particular the drawdown in the stocks overhang, which is currently at a very high level.

At this conjuncture, it is foremost to reaffirm OPEC’s continued commitment to stable markets, mutual interests of producing nations, the efficient, economic and secure supply to consumers, and a fair return on invested capital.

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. Hence, it is under the principles of good faith that countries participating in today’s meeting agree to commit themselves to the following actions:

1. In the fulfilment of the implementation of the Algiers Accord, 171st Ministerial Conference has decided to reduce its production by around 1.2 mb/d to bring its ceiling to 32.5 mb/d, effective 1st of January 2017;

2. The duration of this agreement is six months, extendable for another six months to take into account prevailing market conditions and prospects;

3. To recognize that this Agreement should be without prejudice to future agreements;

4. 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 and compliance with this Agreement and report to the Conference;

5. This agreement has been reached following extensive consultations and understanding reached with key non-OPEC countries, including the Russian Federation that they contribute by a reduction of 600 tb/d production.

In testimony of the above-stated the undersigned, authorized by their governments, have signed this Agreement.

For our thoughts on the table see this post.

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Update 6: And now Russia's energy minister chimes in as follows:

  • RUSSIAN ENERGY MINISTER NOVAK SAYS WELCOMES OPEC DECISION
  • NOVAK SAYS OPEC OIL DEAL IS MAJOR STEP FOR GLOBAL CRUDE INDUSTRY, AIMED AT RESTORING SUPPLY/DEMAND BALANCE
  • NOVAK SAYS RUSSIA READY TO JOIN AGREEMENT ON OIL PRICE STABILIZATION
  • NOVAK SAYS RUSSIA READY TO GRADUALLY CUT OIL OUTPUT BY UP TO 300,000 BPD IN H1 2017
  • NOVAK SAYS RUSSIA WILL CUT PRODUCTION ONLY GRADUALLY BECAUSE OF TECHNICAL ISSUES
  • NOVAK SAYS RUSSIA EXPECTS OTHER NON-OPEC COUNTRIES TO CUT OUTPUT BY UP TO 300,000 BPD
  • NOVAK SAYS OPEC, NON-OPEC COUNTRIES AGREED TO MEET WITHIN 10 DAYS
  • NOVAK SAYS OPEN, NON-OPEC DEAL TO BE STATED IN OIL PRODUCERS' SPECIAL MEMORANDUM
  • NOVAK GIVES NO INDICATION FROM WHICH LEVEL RUSSIA IS READY TO CUT OUTPUT.

In other words, Russia may cut slowly, assuming it cuts at all if it uses a proposed budget level as was hinted earlier in the week.

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Update 5: as the meeting concludes, here are the details as they emerge one headline at a time:

  • AL-FALIH: OPEC HAS MADE A ‘VERY HEALTHY’’ AGREEMENT
  • AL-FALIH: OPEC DEAL WILL START IN JAN
  • AL-FALIH: SAUDI OIL OUTPUT LIMIT 10.058M B/D
  • SAUDI ARABIA TO CUT 486K B/D FROM JAN, OPEC DOCUMENT SAYS
  • IRAQ AGREED TO CUT OUTPUT BY 209K B/D, KUWAIT OIL MINISTER SAYS
  • IRAQI MINISTER SAYS RUSSIA AGREED TO CUT OUTPUT BY 300,000 B/D
  • IRAQ TO PRODUCE 4.351M B/D FROM JAN: OPEC DOCUMENT
  • IRAQ OIL MINISTER CONFIRMS HIS COUNTRY WILL CUT OIL PRODUCTION
  • IRAQ CUT WILL BE FROM OCT. SECONDARY SOURCES LEVEL: VENEZUELA
  • KUWAIT WILL CUT OIL OUTPUT 130K B/D, OIL MINISTER SAYS
  • SAUDI ARABIA: NON-OPEC TO CONTRIBUTE 600K BPD TO CUTS
  • RUSSIA HAS OFFERED 300,000 B/D OIL CUT: QATAR
  • LIBYA SEES NON-OPEC COUNTRIES COOPERATING IN OUTPUT DEAL
  • NON-OPEC NATIONS HAVE GIVEN COMMITMENT TO PARTICIPATE IN DEAL
  • IRAN TO CUT PRODUCTION BY 90K B/D FROM OCT. LEVEL: ZANGANEH
  • IRAN OIL MINISTER: OPEC WILL CUT PRODUCTION TO 32.5 MLN BPD
  • IRAN TO PRODUCE 3.797M B/D FROM JAN: OPEC DOCUMENT
  • OPEC NEEDS COOPERATION WITH OTHER OIL PRODUCERS: U.A.E. MIN
  • UAE SAYS OPEC NEEDS COOPERATION WITH `OTHERS'
  • NIGERIA IS EXEMPT FROM AGREEMENT TO CUT OUTPUT BY 1.2M B/D
  • OPEC ESTABLISHED MONITORING COMMITTEE TO IMPLEMENT DEAL: SADA
  • SECONDARY SOURCES WILL BE BASIS FOR MONITORING: QATAR
  • OPEC'S NEW 32.5M B/D OUTPUT TARGET INCLUDES INDONESIA: SEC-GEN
  • OPEC TO PUBLISH A TABLE WITH ALL INDVIDUAL COUNTRIES' TARGETS
  • OPEC TO MEET AGAIN ON MAY 25 2017, SAYS QATAR MINISTER, OPEC INTENDS TO EXTEND THE CUTS THEN BY ANOTHER 6 MONTHS
  • RUSSIA TO MAKE STATEMENT ON OUPUT CUTS IN NEXT FEW HOURS: SADA
  • RUSSIA WILL ANNOUNCE OIL-OUTPUT CUT OF 300K B/D: QATAR MINISTER

Regarding the Russian production cut, the relevant question is whether this is an actual cut from historical levels, or a cut to the Russian proposed production schedule.

As for the funniest headline of the day  so far, this is who will monitor the deal to make sure everyone complies:

  • KUWAIT, ALGERIA, VENEZUELA TO MONITOR OPEC DEAL: DEL PINO

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Update 4: a "very happy" Iranian oil minister Zanganeh exits the meeting:

Update 3:According to a Reuters source, UAE, Kuwait, and Qatar are expected to cut output by a combined total of 300,000 bpd.

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Update 2: The next meeting which oil traders will be focused on, that between OPEC and Non-OPEC producers has been scheduled for December 9. It is unclear what happens to the "deal" if non-OPEC decides not to cut production or cuts less than expected. It is also unclear whether US shale producers will participate in this meeting.

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Update: as expected, the deal is contingent: As Amena Bakr of the Energy Intelligence Group reports from Vienna, the Opec agreement is contingent on non OPEC and Russia is onboard to cut says gulf delegate. As a result, OPEC Likely to Meet With Non-OPEC Producers Next Week according to a delegate.

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The much anticipated headline is out and, as Bloomberg reports, OPEC has reached a deal agreeing to cut oil production by 1.2 million barrels per day to 32.5mmbpd from the current level of 33.6mmbpd, according to a delegate. This would be OPEC's first production cut since 2008.

  • OPEC REACHES AGREEMENT TO CUT OIL OUTPUT: DELEGATE
  • OPEC AGREES TO CUT OUTPUT BY 1.2M B/D TO 32.5M B/D: DELEGATE

Saudi Arabia, Iraq and Iran appear to have resolved their differences over production cuts for the time being, with the Saudis accepting that Iran can raise production to about 3.9 million barrels a day. Still it appears some last minute glitches remains:

  • OPEC MINISTERS STILL DEBATING DETAILS OF OIL OUTPUT CUT PROPOSAL FOR SOME COUNTRIES INCLUDING IRAQ - SOURCES. RTRS.
  • IRAQ PM BEING CONSULTED BY OIL MINISTER ON PROPOSED OPEC OUTPUT CUT - OPEC SOURCE. RTRS

Although as a local reporter notes, the Iraq issue appears to have been resolved:

According to other local reports, OPEC won't wait for non OPEC to cut OOTT, and the deal goes effective in January and it's for 6 months and can be extended.

In a potential twist, however, the agreement is also likely to include a reduction of about 600,000 barrels a day by non-OPEC countries according to Bloomberg. This means that there is an element of conditionality to the deal should Non-OPEC nations balk when they sit down with OPEC members next to discuss the final deal framework.

Some early skepticism to the deal has emerged from Commerzbank, whose analyst Carsten Fritsch notes that OPEC’s decision to cut production for the first time in 8 years is pushing prices higher, although the full impact on the market will depend on how the cuts are divided among member states. “Prices reacted positively but the devil is in the detail,” Fritsch said. “We have to wait for a country breakdown and whether it’s reliable or not.” Says the initial price reaction may have been muted as even higher numbers circulated in the market. Doesn’t expect to see a meaningful production cut from non- OPEC states.

We now await the details of who will cut and by how much, how will the production cuts be implemented and supervised, and whether the deal is conditional on Non-OPEC, mostly Russia, participation. Having soared over 7% in advance of the announcement, crude remained near its highs of the day.  The front-month Brent contract also resumes climb, trading $3.55 higher at $49.93.