Non-OPEC producers agree to cut oil output, Saudi Arabia hints at deeper cut than agreed in November

On Saturday, non-OPEC producers agreed to back OPEC in the first global oil output cut in15 years, following with oil prices jumped by about 4 percent. Saudi Arabia reacted by signalling an even deeper cut than agreed in Vienna.

Non-OPEC producers agreed to support OPEC’s November decision to cut output by 1.2 million barrels per day, by cutting their output by an additional 558k barrels per day. Russia stated that it will cut 300,000 barrels per day, whereas nine other producers such as Azerbaijan, Mexico, Oman and Kazakhstan would be cutting the remaining 258,000 barrels per day.

The contributions from Azerbaijan and Mexico are likely to be made through natural fall, noted Nordea Bank in a research report. The promised cuts by Iraq and Kazakhstan at 20,000 barrels per day and 210,000 barrels per day respectively are of quite significance since both nations had planned to boost output in 2017.

The willingness of 10 non-OPEC nations to cut production appears to have pleased the oil minister of Saudi Arabia as he hinted that Saudi is prepared to reduce production beyond the commitment they made during the OPEC meeting in November. With the additional reductions from both non-OPEC producers and Saudi Arabia, it appears like the consortium of oil producers would manage to begin cutting into the worst supply glut in history early 2017 and push oil prices to USD 55-60 per barrel, stated Nordea Bank.

The consortium of producers who agreed to reduce output by over 1.758 million barrels per day accounts for about 60 percent of the total global oil production. Major producers such as China, the U.S., Brazil, Canada and Norway have not agreed to adjust their production. Higher oil prices would set off U.S. shale producers to turn on the taps again; however, it might take additional 12 months to ramp back up to solid growth again as financial strains and declining revenues have put pressure on the shale producers.

“We foresee a net increase in US shale production late next year and higher volumes returning in 2018. Our current oil price estimate for 2017 is USD 57/barrel, but with this weekend’s agreement we might need to revise up the estimate for next year”, added Nordea Bank.