Crude oil prices surged Wednesday following news from OPEC that the group agreed tocut 1.2 MMBOPD of production after two years of producing near capacity in a bid for market share. OPEC agreed to cap production at 32.5 MMBOPD, which, along with agreements form non-OPEC members to reduce production by 600 MBOPD, should reduce global output by 1 percent.
Market watchers were uncertain which way the meeting would go after months of negotiations between OPEC members about how much to cut, and where. Much of the tension surrounded regional rivals Saudi Arabia and Iran – the organization’s first and third largest producers, respectively. Talks to freeze production had been sunk before by disagreements between the two, and many worried that Iran’s insistence to return its production to pre-sanction levels would prevent today’s deal as well.
Today’s deal signifies a turning point for OPEC, however, with Saudi Arabia agreeing to Iran maintaining its current production while the kingdom and other members of OPEC make production cuts. As part of the deal, Indonesia has suspended its membership in OPEC, allowing Iran to set its production cap at 3.797 MMBOPD almost 3 percent higher than the 3.69 MMBOPD it produced in October.
“Before, we were thinking that, optimistically, we could reach market balance at the back-half of 2017 or the front-half of 2018,” Wunderlich Director of Equity Research and Chief Market Strategist Art Hogan told Oil & Gas 360 today. “Now I think we can get there in the front-half of 2017.”