OPEC and Russia agree output deal

Speaking after the OPEC/non-OPEC production agreement was announced in Vienna on 7 December, Ann-Louise Hittle, vice president, macro oils, at Wood Mackenzie, said: “We expected a deal. The stakes were high given the excess supply the market faces in 2019.

“The complicated issues facing OPEC delayed the agreement, in what seemed like a replay of the delicate talks that led to the first OPEC/non-OPEC production cut agreement  in December 2016.

“This time, however, rather than the talks leading up to the deal being held over months, they were largely held this week.”

She added: “The decision is likely to be met with support from some US producers who were concerned that without a deal, WTI prices would fall further, possibly curtailing 2019 drilling activity.

“A production cut of 1.2 million b/d would tighten the oil market by the third quarter of 2019 and cause prices to rise back above $70 per barrel for Brent.

“It would help producers contend with the strength of US supply growth in 2019 when we expect a year-on-year increase of 2.4 million b/d in non-OPEC production as US supply continues to gain sharply.

“That compares to our forecast for oil demand to increase by just 1.1 million b/d in 2019, leaving little room for a significant increase in OPEC production next year and making a production cut necessary to stabilise prices.”

Ms Hittle said: “For most nations, self-interest ultimately prevails.

“Saudi Arabia has a long-term goal of managing the oil market to avoid the sharp falls and spikes which hurt demand and the ability of the industry to develop supply. On top of this, Saudi Arabia also needs higher oil revenues to fund domestic spending.

“For the US, oil prices already oil prices have fallen from $85 to  $60 a barrel for Brent easing pressure on consumers.”