The Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies (OPEC+) agreed to reduce oil production by around 1.2 million barrels per day (b/d) during a meeting in Vienna on December 6, Reuters reported.
OPEC will cut their production by 800,000 b/d from January 2019 while non-OPEC members will curb their production by 400,000 b/d.
Oil prices surged by 5% to more than $63 per barrel following the announcement, which exceeded market expectations of a 1 million b/d supply cut.
The agreement will remain in place until the next OPEC meeting in April, when oil producers review the move.
Ann-Louise Hittle, VP Macro Oils at Wood Mackenzie, said she expected the cut to last at least until mid-2019.
“A number of factors make a six-month cut likely. Firstly, it would allow OPEC to assess the state of the market in June 2019. This is particularly important as the US President Donald Trump, who has called on the group to exercise price restraint, is watching the meeting closely,” she said on the sidelines of the meeting.
“The period to June 2019 also covers the waiver period for Iran’s oil importers. While the waivers are in place – until 5 May 2019 – supply is going to be ample and the recent higher output from key OPEC producers will not be needed by the market,” she added.
OPEC has come under pressure from the US to postpone production cuts, with some officials reportedly considering legal action against the oil cartel.
The move had originally faced opposition from Russia and Iran, but both countries agreed to reduce their production levels following hours of negotiations.
Russia will first reduce its crude output by 228,000 b/d from October levels of 11.4 million b/d, before making further gradual cuts over the following months.