The OPEC meeting that concluded today in Vienna ended with ministers approving productions cuts for the first quarter of 2020. The cuts for OPEC+ will be increased from 1.2 million bpd to 1.7 million bpd. A 500,000 bpd cut should be painless for the organization as they are currently at over-compliance with the cuts as a group. Saudi Arabia has been carrying a large portion of the cuts to compensate for the group’s non-compliant members including Iraq, Russia and Nigeria. The group is now tasked with divvying up the cuts and enforcing the members compliance with the cuts.
Brent crude currently trades 1.3% to $64.24 per barrel and West Texas Intermediate crude us higher by 1.1% to $59.08 per barrel. Oil prices were at their highest levels in over two months before the announcement of production cuts. Early reaction is that the tempered gains in oil price is a sign the market is not that impressed with an extension of the cut that only lasts through March 2020.
OPEC and their allies were caught off guard by the U.S. shale revolution as the U.S. passed Saudi Arabia as the world’s top producer in 2018. The U.S. The U.S. Energy Information Administration raised its 2020 forecast to 13.29 million bpd, an increase of 119,000 barrels. OPEC also released their World Oil Outlook last month, which projected the energy demand will increase by 25% by 2040.
OPEC will be able to reevaluate their policies on March 5, 2020 at their next meeting.