OPEC and friends agree to cut oil production by 1.2 million barrels per day

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Major oil producers have reached a preliminary deal to cut oil production and boost the market.
The alliance is currently aiming to take 1.2 million barrels per day off the market, Iranian Energy Minister Bijan Zangeneh told CNBC.
OPEC has agreed to exempt Iran from cutting production, Zangeneh said.

Major oil producers have reached a preliminary deal to cut oil production and boost the market, following two days of grueling negotiations.

OPEC is holding talks with allied oil-producing nations including Russia at its headquarters in Vienna, Austria on Friday. The gathering comes after deep divisions in the energy alliance were laid bare at a closely-watched meeting on Thursday, with OPEC unable to agree on the terms of crude output cuts.

The alliance is currently aiming to take 1.2 million barrels per day off the market, Iranian Energy Minister Bijan Zangeneh told CNBC. The 15-member OPEC cartel has tentatively agreed to reduce its output by 800,000 bpd, while Russia and the allied producers are proposing a 400,000 bpd reduction.

“I am sure that they will reach an agreement,” Zangeneh told CNBC while departing OPEC headquarters for the airport.

The roughly two dozen producers entered a closed session to hammer out a final deal around 3 p.m. in Vienna.

The talks made progress on a critical front on Friday, with Russia agreeing to cut output by 200,000 barrels per day, news agencies reported. The 15-member OPEC group had delayed a decision on how many barrels it would take off the market until Moscow committed to a specific reduction.

However, discussions hit an impasse earlier on Friday because Saudi Arabia had refused to agree to an exemption for Iran, OPEC sources told Reuters.

U.S. sanctions against Iran, OPEC’s third-largest producer, have already significantly reduced its exports. Iranian Energy Minister Bijan Zangeneh says his country should not be forced to cut production in light of the sanctions, which are backed by the Saudis.

Zangeneh told CNBC that OPEC has agreed to exempt Iran from cutting production.

The meeting between OPEC and non-OPEC members comes at a time when the oil market is near the bottom of its worst price plunge since the 2008 financial crisis.

Brent crude, the international benchmark for oil prices, was trading at $62.59 a barrel, up 2.5 percent, at 9:20 a.m. ET (1420 GMT). West Texas Intermediate (WTI) stood at $53.52, around 4 percent higher.

Energy Aspects said communicating a deal properly is imperative because the market is fragile right now. The energy research firm warned in a research note that a “jumbled statement referring to some broad intention to prevent the market from being oversupplied will undoubtedly trigger a further sell-off in prices.”

Oil prices have crashed around 30 percent over the last two months, ratcheting up the pressure on budgets in oil-exporting countries.
Saudi Arabia’s Oil Minister Khalid al-Falih talks to journalists at the beginning of an OPEC meeting in Vienna, Austria December 6, 2018.
REUTERS | Leonhard Foeger
Saudi Arabia’s Oil Minister Khalid al-Falih talks to journalists at the beginning of an OPEC meeting in Vienna, Austria December 6, 2018.

The Saudis have been leading calls for the group to trim output, amid surging supply and fears that an economic slowdown will erode fuel demand. The oil-rich kingdom has previously indicated it wants the group to curb output by at least 1.3 million barrels per day (bpd).

However, Saudi Arabia’s Energy Minister Khalid al-Falih told reporters Thursday morning that an output cut of 1 million bpd would be sufficient for OPEC and its allied producers. That is in part because Alberta, Canada announced this week it would require producers to cut output by about 325,000 bpd to drain the province’s brimming crude stockpiles.

As always though, the hard part for the energy alliance is not figuring out a number, but rather how the group divvies up the cuts.

OPEC began capping supply in partnership with Russia and several other nations in January 2017 in order to end a punishing downturn in oil prices.

The alliance reversed course and agreed to hike output in June after it removed more barrels from the market than it intended, largely due to the ongoing freefall in Venezuelan output and supply disruptions in Libya.

— CNBC’s Brian Sullivan contributed reporting to this story.

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