11 outside OPEC to pump less oil; Saudis set to deepen cut

Alexander Novak (left), Russia’s energy minister, and Saudi Arabian counterpart Khalid al-Falih speak at a news conference Saturday after an OPEC meeting in Vienna.
Alexander Novak (left), Russia’s energy minister, and Saudi Arabian counterpart Khalid al-Falih speak at a news conference Saturday after an OPEC meeting in Vienna.

VIENNA -- OPEC has persuaded 11 nonmembers to cut oil production, a move aimed at draining a worldwide oil glut and boosting low prices that have squeezed government finances in Russia and Saudi Arabia.

Minutes after the pledge by non-OPEC nations, Saudi Arabia signaled that it's ready to cut oil production more than it had earlier indicated.

Officials said Saturday that non-OPEC nations agreed to cut 558,000 barrels per day for six months starting Jan. 1, and that the deal was renewable for another six months after that. The figure was less than the 600,000 barrels a day that the Organization of the Petroleum Exporting Countries had hoped for.

The pact -- the first between the organization and non-OPEC nations in 15 years -- comes after an OPEC decision Nov. 30 to reduce member output by 1.2 million barrels a day.

Saudi oil minister Khalid al-Falih called Saturday's deal "historic" and said it would stabilize the market through next year and encourage industry investment. The announcement came after OPEC member states met with Russia and other non-OPEC countries in Vienna for talks.

Al-Falih said the deal "is meant to accelerate the natural process of rebalancing" the oil market.

Saudi Arabia's pledge to make further cuts to its production and the OPEC deal made with nonmembers suggest a forceful effort by producers to wrest back control of the global oil market, depressed by persistent oversupply and record inventories, experts said.

"This is shock and awe by Saudi Arabia," said Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London. "It shows the commitment of Riyadh to rebalance the market and should end concerns about OPEC delivering the deal."

Saudi Arabia agreed with OPEC on Nov. 30 to cut its production to 10.06 million barrels a day, down from a record high of nearly 10.7 million barrels in July.

"I can tell you with absolute certainty that effective Jan. 1 we're going to cut and cut substantially to be below the level that we have committed to on Nov. 30," al-Falih said after the announcement of the deal with non-OPEC nations.

The 11 non-OPEC nations taking part in the agreement are: Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan and South Sudan.

Major oil producers such as nonmember Russia and cartel leader Saudi Arabia have seen a worldwide oversupply send prices lower and reduce revenue to government budgets.

It remains to be seen whether the cutbacks will do much to raise prices, given OPEC members' track record of exceeding agreed-upon production quotas, and due to weak uptake from a sluggish global economy.

Analysts said it could be difficult to precisely monitor just how much oil producers are pumping, and that countries like Russia have rarely shown a willingness to cut production or to cooperate with others.

"It may all come to seem an optical illusion," said Bhushan Bahree, an OPEC analyst at IHS Markit, a research firm.

OPEC Secretary-General Mohammed Barkindo said much of the production cuts were expected to come from Russia, which was a co-chairman of Saturday's meeting.

Russia had already announced plans to reduce output by 300,000 barrels a day next year, down from a 30-year high last month of 11.2 million barrels a day. At the meeting, Mexico pledged to cut 100,000 barrels, Azerbaijan by 35,000 barrels and Oman by 40,000 barrels, a delegate said.

Kazakhstan pledged a cut of 20,000 barrels a day after coming under strong diplomatic pressure, delegates said, asking not to be identified before an official announcement. The Kazakh cut is particularly important because the International Energy Agency had expected the Asian nation to boost production in 2017 by 160,000 barrels a day after a giant oil field started pumping.

Some non-OPEC countries such as Mexico were already seeing production wane due to weak demand. Al-Falih said "the intent by all those who participated is to contribute to drawing down oil inventories that are excessive."

"And whether the reduction in that oversupply comes from deliberate intervention -- like it is in Saudi Arabia -- or by simply managing the decline in a way that makes them meet this agreement is left to the countries themselves," he said.

Al-Falih and his Russian counterpart, Alexander Novak, revealed they had been working for nearly a year on the agreement, meeting multiple times in secret.

"This is truly a historic event," Novak said. "It's the first time so many oil countries from different parts of the world gathered in one room to accomplish what we have done," he added, speaking alongside al-Falih.

Saudi Arabia, the world's top oil exporter, has long insisted that any reductions from OPEC should be accompanied by action from other suppliers. Even so, the deal reached Saturday may not reduce global stockpiles fast enough to radically alter market dynamics, especially if compliance is patchy.

"Emotionally, the market will likely rally," said Adam Ritchie, founder of AR Oil Consulting. "But beyond rebalancing supply and demand, we have excess inventory that is astronomic that will continue to keep a lid on prices."

Oil fell from over $90 per barrel in early 2014 to as low as $40 earlier this year, briefly sending the average price of regular gasoline at the pump to under $2 for motorists in the United States. Oil closed at $51.58 on Friday, up 6 percent since the OPEC production cut was announced. The price rise has propelled the share prices of energy groups from major companies such as Exxon Mobil Corp. to shale firms such as Continental Resources Inc.

Information for this article was contributed by Kiyoko Metzler, Philipp-Moritz Jenne and David McHugh of The Associated Press; by Grant Smith, Angelina Rascouet and Elena Mazneva of Bloomberg News; and by Stanley Reed of The New York Times.

A Section on 12/11/2016

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