Wednesday, September 28, 2016

OPEC Agrees on Need to Cut Oil Output
Cartel to finalize detailed output-cut plan after committee report in November

Wall Street Journal
Sept. 28, 2016 3:32 p.m. ET

ALGIERS—OPEC on Wednesday reached an understanding that a crude-oil-production cut is needed to lift petroleum prices, people familiar with the matter said, but the cartel will wait until November to finalize a plan to tackle a supply glut that has lasted longer than expected.

The consensus was reached after a 4½-hour meeting in the Algerian capital. It represents the first acknowledgment from the Organization of the Petroleum Exporting Countries that it needed to take action to alleviate an oil-price slump that has wreaked havoc on the economies of oil producers. OPEC, the 14-nation cartel that controls more than a third of world oil output, has been producing at record levels as its members compete among themselves for buyers.

A person familiar with the matter said the cartel was considering cutting production to between 32.5 million barrels a day and 33 million barrels a day—down from August levels of 33.2 million barrels a day.

“Today, an exceptional decision was made at OPEC,” Iran’s oil minister, Bijan Zanganeh, told reporters after the meeting, according to Iranian state media service Shana.

Exactly how the production cuts would be achieved is unclear. The person said a committee would be formed to study how to carry out the cuts and then report to the cartel at its next meeting on Nov. 30 in Vienna.

Iran, Libya and Nigeria are trying to increase production, while countries like Venezuela and Algeria can ill afford to lose oil revenue by cutting. Saudi Arabia, the group’s largest producer, has been pumping at record levels in recent months and was expected to slow down output in the fall and winter anyway.

The meeting was also lacking the world’s largest producer of crude oil, Russia, which is pumping record levels of the fuel. Russia isn’t a member of OPEC but had been heavily involved in talks with the cartel about jointly slowing down output.

The person familiar with the matter said the output cuts would be discussed with non-OPEC members soon.

The prospect of OPEC returning to its traditional role of propping up oil prices with production cuts—a weapon it had kept sheathed since oil prices fell in 2014—sent the crude market on a wild ride. Prices rose over 5% to above $49 a barrel after reports of a deal surfaced Wednesday following a volatile day of trading.

OPEC kicked off Wednesday’s meeting against a bleak backdrop in the oil industry. After years of prices around or above $100 a barrel, oil prices fell below $30 a barrel this year for the first time in over a decade and have remained stuck between $40 and $50 for months. It has resulted in cheap energy costs for consumers but also tens of thousands of layoffs in the petroleum business, which has dragged on the U.S. economy at times.

OPEC hasn’t taken any concrete action to help the market since prices first began falling in 2014. Saudi Arabia, the cartel’s biggest producer and de facto leader, reasoned that an American oil boom made OPEC’s traditional move of cutting production levels less effective at propping up the market. Instead, Saudi Arabia and other OPEC members opened the spigots full blast and pumped record levels in a fierce competition for market share.

The previous position of Saudi Arabia’s oil officials had been that low oil prices would push production out of the market and prices would eventually rise as demand overtakes falling supply. But U.S. production has been more resilient than most observers expected, and billions of barrels of the world’s vast oversupply of oil has been put into storage, delaying the day when demand catches up to supply.

At OPEC’s last meeting in June, when the cartel took no action, OPEC believed supply and demand would harmonize—and prices would recover—late this year or early next.

“Our expectations about the rebalancing process have shifted,” said OPEC Conference President Dr. Mohammed Bin Saleh al-Sada, in a speech to the cartel before its private gathering. “It is evident that there is now a greater degree of urgency.”

Saudi Energy Minister Khalid al-Falih said this week that the market needed reassurance—“a gentle adjustment.” It wasn’t a call for dramatic action, but it represented a departure from Mr. Falih’s predecessor, longtime Saudi oil minister Ali al-Naimi, who last declared OPEC was no longer a cartel and that the days of production cuts were over.

Write to Benoit Faucon at, Georgi Kantchev at and Selina Williams at

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