The Organization of the Petroleum Exporting Countries (OPEC) and its allies are moving closer to agreeing one of the deepest output cuts this decade to support crude prices and prevent a glut, sources told Reuters.
The group and its allies, who are meeting in Vienna Thursday-Friday, are expected to discuss increasing current cuts of 1.2 million barrels per day (bpd) by more than 400,000 bpd, sources said. The current cuts expire in March and the new deal could be extended to June or until the end of 2020.
RBC’s head of global commodities strategy Helima Croft told CNBC that a production cut of 400,000 bpd was “potentially a very realistic option.”
“I think this actually is something which is very much a live option. We are actually hearing that this was not a proposal that the Iraqis made but that it was a proposal made by the Saudi government,” Croft said.
In January 2017, the 24-country OPEC+ group cut its collective production to erase an oil glut and prop up prices. Statistics showed that in 2019 the group has held back 1.2 million bpd from the market.
The International Energy Agency (IEA) predicted the return of a glut in the oil market in 2020. It said that it expects a 2.1 million bpd expansion of the oil supply from non-OPEC nations next year – a slight jump from this year – thanks in large part to the rapid increase in US production. The IEA added that the likely drop in demand for OPEC’s crude oil in early 2020 could result in the alliance’s production dipping to 28 million bpd, the lowest since 2003.
According to the agency’s data, the supply of oil exceeded global demand by 0.9 million barrels per day (bpd) in the first half of 2019.
Oil prices rose on Thursday, with both Brent and WTI up by almost one percent. Benchmark Brent was trading at $63.53 a barrel at 1:16pm GMT, while West Texas Intermediate grew to $58.67.
