Members of the Organization for Petroleum Exporting Countries (OPEC) and its allies finalized an agreement on the second day of the organization’s meeting in Vienna Dec. 6, agreeing to jointly reduce supply by an additional 500,000 b/d through the end of March 2020.
The agreement follows measures proposed Dec. 5 (OGJ Online, Dec. 5, 2019).
Oil prices increased, noted AEGIS Energy Risk LLC. “WTI is bumping up against $60/bbl for the prompt contract and Brent is near $65/bbl,” the report noted. The reduction expands current production curtailments of 1.2 million b/d by roughly 40%.
Currently, the group is cutting production some 1.5-1.6 million b/d with over-compliance mostly from Saudi Arabia, AEGIS reported. With this, expansion of the cuts calls leads to a small cut to current levels, but Saudi Arabia said it would maintain a 400,000 b/d over-compliance, putting total supply cuts for the group near 2.1 million b/d, it continued.
The move to further decrease aggregate production led the market to bid prompt-month WTI “to the highest level it had maintained in the last several months,” AEGIS said.
The next 2 years on the forward curve increased modestly, the company said. On the morning of Dec. 6, “the calendar-year 2020 strip was up to near $57/bbl, gaining about half what the prompt month had,” it said.
Calendar-year 2020 was barely higher, likely for two reasons, AEGIS said. “The market may perceive the nature of the OPEC+ deal being short-term, and second, producers are likely selling into this rally with emphasis in late 2020 and 1H2021.”
