On November 30, 2016, Organization of the Petroleum Exporting Countries (OPEC) members gathered to discuss production cuts. For the first time since the first quarter in 2008, OPEC members agreed to cut 1.2 million oil barrels (bbl) per day starting January 1, 2017. This cut came with the expectation that non-OPEC countries will agree to cut 600,000 bbls per day of production as well, resulting in a total cut to global production between 1 percent to 2 percent. Russia allegedly agreed to take half the non-OPEC cuts, but this won’t be decided until OPEC and non-OPEC countries meet in Vienna on December 10, 2016.
This deal isn’t without hurdles. Libya and Nigeria are exempt from the production cuts, so any production increase from these countries could offset OPEC cuts. There also is a question as to whether OPEC members will adhere to the deal, even with the newly created Ministerial Monitoring Committee monitoring compliance. News of the deal spiked bbl prices to more than $50, and on December 6, 2016, both West Texas Intermediate and Brent Crude were more than $50 a bbl. However, skepticism on reducing the oil supplies, given OPEC’s record-high output of 34.19 million bbl per day in November 2016, led to the first decline in pricing on December 6, 2016, since the announcement at the end of November.
For now, the deal’s in place for six months. OPEC will meet again May 25, 2017, to discuss renewal, revamping or dissolution of all production cuts.