Oil prices recovered as the world’s major producers agreed on Friday to lower production than expected and offset the losses of the previous day when the oil-rich nations failed to reach an agreement.
Opec and its allies, including Russia, which together account for half of world oil production, have committed to reduce production by about 1.2 Mbps per day.
The price of Dated Brent international benchmark crude oil has fallen by one-third since the beginning of October to around $ 60 a barrel, as it is worried that the market is oversupplied.
But prices rose nearly 3% on Friday to $ 62.92 a barrel after the oil cartel and its partners reached a deal.
At a meeting in Vienna this week, oil ministers tried to devise a course between protecting their revenues and avoiding anger at US President Donald Trump, who called on Opec to halt the flow of oil and raise prices.
Observers said the deal, which at some point could be considered a founder due to Iran’s demand for exemption from cuts, looked like it would stabilize prices rather than increase prices.
“It looks supportive for oil prices. It will help the market deal with the strong US supply growth we are expecting next year of 1.8mb/d year on year. It leaves room for an increase [in prices too],”
said Ann-Louise Hittle of oil and gas analyst Wood Mackenzie.
However, the experts were divided by how much prices could rise. Bank of Hittle and Investec said Brent could return to $ 70 a barrel next year, while others said a bigger cut was needed to reach that level.
Neil Wilson, Markets.com’s chief market analyst, said, “It’s probably a little better than the market had been expecting, but not by a lot. I’d still say that a deeper cut would be needed to really see oil rally back to $70. ”
The deal is expected to stabilize prices at $ 60 to $ 65 a barrel, said financial services provider Cantor Fitzgerald Europe.
Russia was reluctant to reduce production during the meeting. However, it has agreed to shoulder the burden more than expected, with about 17% of the total cut, with a similar amount being covered by other non-OPEC partners and the oil cartel making up the remainder. Iran was granted the requested exemption.
The cuts will be made at the beginning of the new year, based on a baseline from October. The de facto leader of Opec, Saudi Arabia, said its production will fall from 10.7mbd in October and 11.1mbd in November to 10.2mbd in January.
“This is partly driven by our commitment to start on the right foot in 2019 and to demonstrate that delivering on this agreement will not take a long protracted period of gradually winding down,” said Khalid al-Falih, the Saudi energy minister.
The US and Saudi Arabia have pumped record amounts, which together with the US exemptions for sanctions against Iran’s export has led to an abundance of crude oil.
Experts predict that the US will increase production by a tenth next year as slate operators increase. American oil now accounts for more than one in ten barrels of world crude oil production.