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Last weekend’s non-OPEC cuts were well received by the market, and crude prices pushed higher. The markets also focused on strong Saudi statements indicating that they were fully prepared to cut below the 10.058 Mb/d target agreed on 30 November, including going below 10 Mb/d.
What happened last weekend? Non-OPEC countries agreed to cut 558 kb/d. In cooperation with OPEC, which met on 30 November and agreed to cut crude production by 1.2 Mb/d, eleven non-OPEC countries, led by Russia, met on 10th December and agreed to cut oil output by an additional 558 kb/d. The targeted reductions were led by Russia’s 300 kb/d, which had been previously announced.
Other cuts reportedly included 100 kb/d from Mexico, 45 kb/d from Oman, 35 kb/d from Azerbaijan, and 20 kb/d from Kazakhstan. Similar to the OPEC cuts, the non-OPEC cuts begin on 1st January and last for six months, extendable for another six months depending on market conditions.
In addition, the demonstration of full cooperation and agreement between Russia and Saudi Arabia highlights a significant development, not just for the oil markets, but also geopolitics more broadly.
Will Russia deliver its cut? Poor track record and mixed signals say no. Obviously, with 300 kb/d of the total 558 kb/d, Russia is by far the most important nonOPEC player. What do we think of the prospects for Russia delivering on its commitment?
History shows that Russia has a very poor track record in keeping its promises when it comes to cutting output in cooperation with OPEC; Russia has never actually done any cutting in the past.
In addition, in recent months, the signals from Russian companies and also the energy ministry have been very mixed; this only stopped in the days just before the 30 November OPEC meeting. As a result, we are extremely skeptical about Russian oil production cuts.
On the NYME crude oil for January delivery fell 0.18% to $50.95 a barrel. Global benchmark Brent was last quoted at $53.91 a barrel, up 0.39%.
Yesterday, OPEC reported its members pumped 33.87 million barrels per day (bpd) in November, the oil cartel, citing its data figures released monthly, a 150,000 bpd leap from October.
At the same time, OPEC has pledged to trim 1.2 million bpd starting in January along with a commitment for 558,000 bpd by non-OPEC members.
WTI oil price is down 3.39% after yesterday’s EIA’s inventory data. The industry data showed a jump of 4.7 million barrels in U.S. crude inventories in the latest week. The International Energy Agency Tuesday predicted if the cuts are fully implemented there could be a supply deficit of 600,000 barrels a day in the first half of next year. After all these fundamental developments of this energy commodity, WTI price was currently trading at $50.96 from its last close.
