OPEC+ agrees to cut production by 1.2mb/d, bringing production back to level at the beginning of this year

The OPEC+ has agreed to cut production by 1.2mb/d, effectively bringing its production back to its level at the beginning of the year. The deal is set to last six months and to be reviewed in April. The outcome was about as positive as it could be from the point of view of oil prices.

The output cut will be based on the level of production in October according to secondary sources in the latest OPEC oil market report. OPEC is set to contribute 800kb/d, while Iran, Libya and Venezuela are exempted from the deal, and non-OPEC will contribute the remaining 400kb/d.

The choice of October as the benchmark for output cuts will in fact make output cuts larger as, Saudi Arabia, for example, raised production further in November. The April review, further allows for revising the deal, for example, in a situation where temporary waivers on Iran sanctions are rolled off next year and Iran production falls further.

The US government is done selling off strategic reserves for now. Furthermore, there is risk of further output loss in Iran and Venezuela in the coming months as sanctions continue to bite. Meanwhile, at the time of writing, the price of Brent crude has rallied to USD61.87/bbl, up 0.96 percent in the day.

"We look for it to recover further above USD70/bbl in the short term and still forecast Brent to average USD85/bbl in 2019," Danske Bank commented in its latest research report.