OPEC and Russia along with partners agreed on Friday to cut oil production by 1.2 million barrels per day (bpd) effective Jan. 2019 for an initial period of six months.
The decision comes following “deliberations on the immediate oil market prospects and in view of a growing imbalance between global oil supply and demand in 2019,” OPEC said in a statement.
OPEC members will cut 0.8 million bpd, while Russia-led allies will cut 0.4 million bpd, reducing total output by 4.5 per cent from October levels. The results will be reviews in an April meeting.
Russia committed to cut output by 228,000 bpd from October levels of 11.4 million bpd, though it said the cuts would be gradual and take place over several months, according to Reuters.
Saudi Arabia’s Energy Minister Khalid Al-Falih said Saudi production had dropped to 10.7 million bpd in December from 11.1 million in November and was set to decline to 10.2 million bpd in January, Reuters said, while Iraq, OPEC’s second-largest producer, agreed to cut 140,000 bpd.
Oil prices initially jumped by about 5 percent to more than US$63 a barrel (Brent crude) late Friday as the combined cut of 1.2 million bpd was larger than the minimum 1 million bpd that the market had expected. Prices closed at $61.29 per barrel on Friday.
Meanwhile, Iran, Libya and Venezuela were given exemptions from the production-cuts.
Iranian Minister of Petroleum Bijan Zangeneh seeking exemptions from the production cuts said: “It will be unnatural for Iran not to be exempted from any OPEC decision.”
Zangeneh said that while Iran does not oppose a production cut, it will not join any agreement until the U.S. sanctions against the country are lifted as this is “a special situation” that the country faces, according to the ministry’s official news agency Shana.