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Non-Opec countries agree joint production cut with Opec

10 Dec 2016 20:05 GMT
Non-Opec countries agree joint production cut with Opec

London, 10 December (Argus) — A group of producing countries from outside Opec, led by Russia, agreed at a meeting with Opec ministers in Vienna today to limit their output by a combined 558,000 b/d as of the start of January for six months in support of Opec's 1.2mn b/d cut.

The meeting was jointly chaired by Qatar's oil minister Mohammed bin Saleh al-Sada, who is also president of Opec, and by Russian oil minister Alexander Novak, according to a statement issued by Opec.

The agreement between Opec and 11 non-Opec producing countries to jointly cut output was the first of its kind since 2001. Non-Opec producers that agreed to cut output at the time, particularly Russia, failed to deliver on their pledges.

"Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and Republic of South Sudan commit to reduce their respective oil production, voluntarily or through managed decline, in accordance with an accelerated schedule," said the statement.

"The combined reduction target was agreed at 558,000 b/d for the aforementioned producers," and would last for six months as of the start of January, it added.

The reduction target is below the 600,000 b/d Opec had said it was seeking but compliance rather than headline numbers will determine the impact of both this deal and Opec's own agreement between members.

The statement did not detail the volume that would be cut by each non-Opec producing country, but Russia, which pledged a reduction of up to 300,000 b/d from its November output - around all time post-Soviet highs -before today's meeting, is expected to shoulder a little over half the planned non-Opec cut.

The agreement brings the total cuts pledged by Opec and non-Opec producers as of the start of January to almost 1.8mn b/d. Opec's 1.2mn b/d cut, which will also remain in force for six months, will be made by 10 out of the organisation's 14 members, with Nigeria, Libya and Iran enjoying an exemption because of recent internal turmoil that forced down their output. Indonesia, which is a net importer, has suspended its membership rather than cut.

Some of the non-Opec countries that pledged cuts, such as Mexico and Azerbaijan, face natural output declines, so their expected production cuts are unlikely to be the result of deliberate measures in support of Opec's cut. Kazakhstan said yesterday it would only phase a forecast production rise in 2017 of 9pc so that the increase comes in the second half of the year.

Russia's first half production is anyway likely to dip by around 150,000 b/d in spring because of maintenance.

Two of the non-Opec countries participating in the cuts will join Opec's ministerial monitoring committee, which will be chaired by Kuwait, with Russia acting as an alternate chair.

Saudi Arabia – Opec's largest producer - had made its agreement to cut output conditional on the participation of major non-Opec producing countries, although it abandoned its insistence that fellow-Opec member Iran should also cut its output. That concession by Riyadh, together with a commitment by Russia to cut 300,000 b/d alongside Opec, were the main factors that facilitated the 30 November Opec agreement for a collective 1.2mn b/d cut by 10 Opec members as of the start of January for six months.