According to the commentary after the conclusion of the Vienna OPEC ministerial meeting, OPEC has agreed to cut output by 1.2mn bpd to 32.5mn, in line with the provisional agreement reached in September.
The deal will last 6 months from January and could be extended with OPEC meeting in late May to decide whether or not to continue or modify the output cuts.
Iraq has agreed to cut output by 0.2mn to 4.35mn bpd while the Iran quota is set to be 3.79mn bpd. Saudi Arabia has agreed to cut output by 0.5mn bpd to around 10.06mn with Nigeria and Libya exempt from the cuts.
Key non-OPEC producers have also agreed to cut output by 0.6mn bpd. The latest reports on Russian output suggest that they will agree to cut output by 0.3mn bpd, splitting the difference between OPEC calls for a 0.4mn cut and Russia’s preference for a 0.2mn reduction.
Indonesia has been suspended from OPEC, according to sources this was done at Indonesia’s request, and their production quota will be allocated among some other members, notably Iran.
The exclusion of Indonesia effectively means that there has been a smaller cut in planned output to just above 33.0mn bpd. Overall confidence in the deal has remained strong with WTI again testing daily highs close to $49.0 p/b and the overall outcome is better than expected at the beginning of the week, although the Indonesia situation means it is not as good as it looks on paper.
Compliance both within and outside OPEC will be a key short-term issue, especially with reports that OPEC production in November increased to a fresh record high above 34.0mn p/b. Widespread evidence of cheating on quotas would inevitably undermine confidence in the deal.