Eleven countries agreed on Saturday to cut their oil output, teaming up with the OPEC cartel in an exceptional bid to end the world’s glut of crude and reverse a dramatic fall in income.
Russia and 10 other non-OPEC states will reduce their production by more than half a million barrels per day (bpd), OPEC announced.
The deal will take effect from the start of 2017 and last for six months, though it may be extended depending on market conditions.
The cut will contribute to the Organisation of Petroleum Exporting Countries’ own initiative to ease a saturated market and end a price slump that has brutally affected the economies of many oil producers.
“I am happy to announce that a historic agreement has been reached,” said Qatar’s Energy Minister Mohammed Bin Saleh Al-Sada, whose country holds the rotating presidency of the Organisation of the Petroleum Exporting Countries (OPEC).
The decision, taken at a meeting at OPEC headquarters in Vienna, follows the cartel’s announcement on November 30 it would reduce its output by 1.2 million barrels per day (bpd) from January to 32.5 million bpd.
Under that deal, OPEC sought for oil-producing nations which are not members to lower their output by 600,000 bpd.
Under Saturday’s deal, non-OPEC producers approved cuts totalling 558,000 bpd.
Russia had already signalled it would provide half of that production cut in the first half of 2017.
The other countries which will contribute cuts are Mexico, Kazakhstan, Malaysia, Oman, Azerbaijan, Bahrain, Equatorial Guinea, Sudan, South Sudan and Brunei.
“This is a truly historic event, the first time that so many oil producing countries are meeting in one room, to accomplish what we’ve done,” Russian Energy Minister Alexander Novak told a press conference.
“In the room we had more than half of the global oil” production, he enthused.
A monitoring committee, comprising three OPEC and two non-OPEC members, will be set up.
Sada said OPEC would continue its efforts to persuade non-OPEC producers to join the reduction effort.
In a speech earlier to the conference, the minister stressed the plunge in oil prices had had “severe consequences.”
“What the past two months have shown is that there is a growing consensus among producers that the market recovery process has taken far too long… It has had a major impact on all our countries, in terms of economic growth, heavy losses in revenue and deep social spending cuts.”
As for the impact on consumers, he said: “We only have to look at the damaging levels of deflation in some OECD countries, as well as the record low-interest rates, sometimes in negative territory in real terms, which is partly attributed to lower oil prices.”
Oil prices had climbed Friday as hopes grew of a deal. In late European business, West Texas Intermediate (WTI) crude stood at $51.44, 60 cents up on the day, while Brent rose 20 cents to $54.09.
The November agreement ended weeks of uncertainty and volatility in crude markets, pushing prices above $50 for the first time in a month.
It also represented a dramatic reversal from OPEC’s Saudi-led game plan, introduced in 2014, of flooding the market to force out rivals, in particular, US shale oil producers.
The strategy saw production outstrip demand, causing prices to plunge from more than $100 a barrel in June 2014 to near 13-year lows below $30 earlier this year.
OPEC produces around 40 percent of the world’s crude and thus needs non-OPEC members to join the cuts to drain current stockpiles.
But Bloomberg calculations, based on OPEC data, indicated there would be the little overall reduction in record oil inventories in 2017 — even if OPEC could convince non-members to come on board.