Organization of Petroleum Exporting Countries members and 10 other oil-producing nations, including Russia, agreed Friday to cut output by 1.2 million barrels a day in a bid to reverse falls in prices in recent months.
This will likely result in oil price increase as local oil companies said they would likely increase gasoline prices by P0.30 to P0.40 per liter in the coming week but will continue to cut the price of diesel by P0.10 to P0.15 per liter.
“Expect fuel prices to have a rollback for diesel and an increase for gasoline. Diesel should decrease by P0.10 to P0.15 per liter while gasoline should increase by P0.30 to P0.40 per liter,” Unioil Philippines said in its oil price advisory.
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Energy ministers of OPEC member-countries reached the deal—which takes effect from Jan. 1 but has already sent prices surging on oil markets—after two days of talks at OPEC headquarters in Vienna.
“OPEC group countries are contributing 800,000 barrels per day as a cut, and the non-OPEC (countries) will be contributing 400,000 barrels per day,” Emirati Oil Minister Suhail Mohamed al-Mazrouei said at a news conference.
OPEC and its partners, which together account for around half of global output, met against the backdrop of a glut in the market which had led to oil prices falling by more than 30 percent in two months.
Mazrouei said that three countries had been allowed exemptions from the agreement due to “special circumstances.”
“Those countries are Iran and Venezuela because of the sanctions and Libya because of the fact that unfortunately, they are on and off,” he added, alluding to the impact on Libyan production of continuing conflict there.
Mazrouei said that the exemptions mean that the cuts introduced by other member states are “going to be a bit higher than just the average for everyone”.
For his part, Russian Energy Minister Alexander Novak—whose country is the world’s second biggest producer of oil—said that the agreement “should help the market reach a balance” and recognized that negotiations had been “complex.”
The price of Brent crude, the European benchmark, surged 4.43 percent on Friday to $62.7 as of 17:15 GMT.
But some said Friday’s deal may not be enough to keep oil prices buoyant.
“I would describe the cuts as close but not close enough with regards to eliminating the global oil glut,” said Stephen Brennock, oil expert at London brokerage PVM.
“A combined reduction of 1.5 mbpd was needed to avoid a supply surplus in the first half of next year,” he told AFP.
“Accordingly, the price outlook for the coming few months still remains skewed to the downside despite today’s knee-jerk reaction.”
The deal was announced after Novak held bilateral meetings with several counterparts, including Iranian Energy Minister Bijan Namdar Zanganeh, before the full meeting.
However, the major players all had their own reasons to look to others to act first and the details of how any cuts will be Novak said that Russia, which leads the non-member countries in the so-called OPEC+ alliance, would introduce cuts “gradually” to allow for “climatic and technical conditions” but aimed to reach the cuts target in the next few months.
OPEC kingpin Saudi Arabia, meanwhile, had to bear in mind pressure from the United States after President Donald Trump demanded in a tweet on Wednesday that the cartel boost output so as to lower prices and help the economy.
The kingdom’s diplomatic position has been badly weakened by the furor over the killing of Saudi journalist Jamal Khashoggi.
Trump insists he will stick by Riyadh despite the outrage but he has been also ramping up the pressure for more oil.
However, at Friday’s press conference Saudi Energy Minister Khalid Al-Falih sought to play down Trump’s influence on the decision, saying: “Over 2018 I have met with consumers in Asia more often than I have read tweets coming out of the White House.”
India had also asked for action to bring down high oil prices, he said.
In addition, while admitting that “many consumers are suffering from the high cost of energy”, Falih said: “I take the opportunity to plead with consumer nations to take it easy on their own people with taxation,” claiming that this was the main driver of prices at the pump.
READ: Oil price cuts precede tax hike
In June, OPEC and its partners agreed to allow for a boost in production by Saudi Arabia and Russia to compensate for the expected losses in output from Iran after the US dramatically withdrew from the Iran nuclear deal in May and decided to re-impose tough sanctions.
However, the US then granted temporary waivers to eight countries, including crucially China, to allow them to carry on importing Iranian oil, contributing to a plunge in oil prices which wiped out the gains seen since early 2017.
Meanwhile, the Department of Energy said next week’s oil price movement was influenced by several factors.
DOE said in its latest monitoring report that US oil prices stabilized on Friday, buoyed by a fall in US crude oil inventories, but sentiment remained weak as producer group Organization of Petroleum Exporting Countries postponed a final decision on output cuts, awaiting support from non-OPEC heavyweight Russia.
DOE said oil producers have been hit by a 30-percent plunge in crude prices since October due to oversupply but demand outlook has weakened amid a global economic slowdown.
Monitoring showed that oil output from the world’s biggest producers—OPEC, Russia and the United States—has increased by 3.3 million barrels per day to 56.38 million bpd since end 2017, meeting almost 60 percent of global consumption.
“The increase alone is equivalent to the output of major OPEC producer the United Arab Emirates,” DOE said.
It said sentiment in the Asian gasoline market remained bearish as market participants continued their search for support amid chronic supply overhang.
Energy Secretary Alfonso Cusi said early this week that Qatar’s decision to leave OPEC will have an impact on oil prices globally.
“Qatar will be acting more independently and hopefully that would increase their production and increase the supply in the world market. If there will be more supply, then the price would go down,” Cusi said.
Cusi also said that the planned OPEC-Russia production cut may not have much impact on supply.
“As of now, the forecast is that the world supply is something at 100 million barrels per day and demand is the low 98 to 99 million so there is a buffer and it is projected that the US will be increasing its production so if the US will be able to cover for the production cut of Saudi Arabia and Russia, it will be okay,” the energy chief said.
Last week, the oil firms cut pump prices by as much P2.10 per liter to reflect the movement in world oil prices amid the ongoing supply glut.