Vienna: The countries of Opec and ally Russia agreed on Friday to cut crude production by an extra 500,000 barrels a day.
Russian energy minister Alexander Novak announced the decision at a news conference after long discussions at the Opec headquarters in Vienna.
The group’s goal is to to support the price of fuel and energy around the world. But they also do not want to lose global market share to the United States, which keeps pumping more oil.
“We have decided to reduce production by 500,000 barrels a day through the first quarter of next year,” Novak said.
The price of crude has been held down in recent years by a resurgence in supplies from countries outside Opec, particularly the United States.
The sticking point in the talks appears to be how to share the cuts among the 14 Opec countries and nations like Russia that have been coordinating their production with the cartel in recent years.
Saudi Arabia has been bearing the burden of the largest share of production cuts recently. But some countries have been producing more than their expected.
Analysts note that if countries are already not complying with the current agreement, voting for more cuts could be pointless.
“The devil will be in the details,” said Justin Low, an analyst at brokerage ForexLive.
He says that Iraq, Nigeria and Russia have not been observing their production limits for various reasons, so part of the decision will be how to ensure greater compliance with any agreement.
West Texas Intermediate for January delivery fell 55 cents to $57.88 a barrel on the New York Mercantile Exchange as of 8:55am local time. Brent for February settlement lost 36 cents to $63.03 a barrel on the London-based ICE Futures Europe Exchange. The global benchmark traded at a $5.23 premium to WTI for the same month.
Prices have fluctuated throughout the year, reaching nearly $75 in April after US sanctions on Iran and Venezuela limited world supply, but lingering trade tensions between the US and China dampened economic expectations pushed prices back down.
Russia has indicated it wants its oil production re-calculated to exclude gas condensate, a liquid by-product of natural gas production. Condensate is counted against production totals for non-Opec members but not for members.
Even if members of the cartel cut production, there is more oil coming to market from non-Opec nations, including the US, Canada, Brazil, Norway and Guyana. That could make up for any cuts from Opec and Russia, who will also be wary of not losing global market share by cutting output too much.