OPEC Faces Obstacles in Implementing Output Cuts Agreement

Strategic Insights -

OPEC ministers gathered in Vienna to ratify a plan to cut oil production to shore up prices, as agreed upon by Saudi Arabia, Venezuela, and non-OPEC producer Mexico. The meeting is expected to result in a speedy endorsement of the plan, but obstacles, both internal and external, are threatening to undermine the collective cuts of 1.6 million-2 million barrels per day (b/d). The group has agreed to cut about 1.2 million b/d from February output levels, but individual members, including Iran, Indonesia, and Nigeria, have pledged to cut from their quotas, not actual production, which could render their cuts meaningless.

Key Takeaways:

  • Only Mexico, Oman, Yemen, and Norway have agreed to cut output, with a combined reduction of about 240,000 b/d, short of the 400,000 b/d anticipated from non-OPEC producers.
  • Egypt, Russia, and Malaysia have announced they will not cooperate in cutting output.
  • Norway agreed to rein in 100,000 b/d of production in support of higher prices, after a two-day battle in parliament.
  • Three OPEC members (Iran, Indonesia, and Nigeria) have pledged to cut production from their quotas, not actual production, with Iran and Indonesia currently producing below their quotas.
  • Nigeria has pledged to cut 125,000 b/d from its OPEC allocation of 2.04 million b/d, although it has been supplying markets with as much as 2.2 million b/d of crude this month.
  • OPEC has agreed to cut about 1.2 million b/d from February output levels, but the effectiveness of these cuts is uncertain.
  • The meeting is expected to result in a speedy endorsement of the plan, but prices could tumble if the countries are unable to implement the cuts or if the quota system is debated.
  • The agreement reached in Riyadh on March 22 has OPEC and several non-OPEC producers committing to cutting output to shore up prices.
  • Non-OPEC producers who have agreed to cut output are Mexico, Oman, Yemen, and Norway, who will reduce output by about 240,000 b/d.
  • Egypt, Russia, and Malaysia have announced they will not cooperate in cutting output.
  • OPEC's agreed cuts are about 1.2 million b/d from February output levels.

Sources:

  • This report is based on a news article not provided in the original text, so will rely on the provided article.

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