Opec and non-Opec producers apparently have agreed to cut crude oil production by 1.2 million barrels per day (Mmbpd), according to delegate sources. The end result may be a muddled middle course that neither stabilizes the price of oil nor mollifies a USA leader obsessed with keeping gasoline cheap. OPEC accounts for about one-third of global crude production. OPEC will cut 0.8 million barrels per day from January with additional contributions of 0.4 million barrels per day of cuts, Iraqi Oil Minister Thamer Ghadhban said. However, this did not prevent the ongoing fall in oil prices.
"Against the wishes of most OPEC members. consequently the market started to relax, and that was reflected in declining oil prices".
Two reasons can be offered.
The highly anticipated decision was delayed since Thursday pending the outcome of the dialogue between both groups on the ideal volume that would be adequate to help stabilise the market and strengthen crude oil price at the global oil market. This has increased to 57% in 2018.
But with the U.S. Senate determined to punish Saudi Arabia for the killing in October of journalist Jamal Khashoggi, a U.S. resident and prominent critic of the Gulf kingdom's Crown Prince Mohammed bin Salman, some Western diplomats and analysts aren't so sure that the Saudi-led cut was without a political motive.
The index harnesses real-time intelligence on oil production from OPEC, Russia and the U.S., and sets this against The EIU's forecasts for global oil consumption, providing an early indicator of the adequacy of global oil supplies.
While Saudi Arabia is still the largest oil producer inside OPEC, its influence over the global oil market has shrunk as the United States and Russian Federation are pumping oil at record levels. A strong economic recovery in advanced countries contributed to tightening in oil prices earlier this year. This provided further tailwinds to oil prices.
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The unemployment rate, meanwhile, remained unchanged for the third straight month, holding steady at 3.7 percent - a 49-year low. Despite the tariffs and concerns over trade, manufacturers added 27,000 jobs last month, spread fairly evenly across the sector.
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Both these factors changed subsequently.
A higher cut in output means lower revenues from oil exports for producing countries whose economies are highly dependent on sales. Oil prices have reversed their rising trend since mid-October.
Oil prices had been on a steady upward trajectory after the USA exited the Iran nuclear deal (Joint Comprehensive Plan of Action, or JCPOA) in May, aided by the previous period of OPEC output restraint. "Net exports can improve USA trade balances".
The slight recovery came after crude slumped by nearly 3 per cent the previous day, with the Opec ending a meeting at its headquarters in Vienna, Austria, on Thursday without announcing a decision to cut crude supply.
Junior oil firm Bonterra Energy Corp. announced last month it would cut its monthly dividend to a penny from 10 cents per share because of low oil prices. "We continue to re-tool our export infrastructure along the Gulf Coast to expand capacity, and you continue to see strong demand globally for crude oil". While we can expect prices to increase, it will definitely not cross $70/barrel and a hike of $3-5/barrel is more likely, Sabnavis added.
International Brent crude oil futures fell below $60 per barrel in early trade, but firmed to $60.17 a barrel.