Oil prices climbed on December 12 following a deal between members of the Organization of Petroleum Exporting Countries (OPEC) and some non-OPEC members to cut their oil production.
AP quoted Qatari Energy Minister Mohammed bin Saleh al-Sada as saying on December 10 that non-members agreed to cut 558,000 barrels per day. Those non-member cuts would come on top of an OPEC decision November 30 to reduce member output by 1.2 million barrels a day.
WTI was reportedly up 4.7% to $53.91 per barrel on December 12. Brent crude increased 4.1% to $56.56.
The non-OPEC countries agreeing to cut oil production were Russia, Kazakhstan, Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Malaysia, Mexico, Oman, Republic of Sudan and Republic of South Sudan.
To monitor commitment to the output-cutting deal, two non-OPEC countries will join a monitoring committee.
“Predictably, the price of oil has risen because of the oil producing states agreeing to cut back on production to re-balance an over-supplied market,” Warwick Business School energy professor Michael Bradshaw wrote in an emailed note on December 12. However, it depends on whether the agreement will hold and how will tight oil production in the US respond, he added.
“As the price goes up, so the rigs will start up. There is also uncertainty on the demand side, the global economy is now less energy and oil-intensive than it used to be and sluggish economic growth means that demand will not grow rapidly. Overall, the good news for oil exporting states will be balanced by the bad news for oil importing states,” Bradshaw wrote.
“The current agreement is only for six months and decisions about investment in oil and gas are based on a 20-30 year view of future demand. On that time scale, none of the uncertainties are addressed by the current agreement and oil-exporting states need a strategy beyond achieving a short-term agreement on production – they need to start preparing for a world after fossil fuels,” he wrote. “The same is true for consumers who should use higher prices to promote energy efficiency and demand reduction.”