OPEC Solidarity
On November 30, the ministerial meeting of the Organization of the Petroleum Exporting Countries (OPEC) ended in a historic agreement. After the agreement was announced, oil market took a sigh of relief. What was highlighted in headlines was a simple sentence: "Iran won." This simple phrase was analyzed from different standpoints with regard to Iran's petroleum industry under the administration of President Hassan Rouhani. Despite last year, speculation is optimistic this year. Iran proved during the OPEC Conference that it was able to regain its market share in addition to negotiating with its rivals.
The output cut accord reached in the meeting had not been forecast by market. Ahead of the meeting, member states' ministers had expressed optimism about the outcome of the negotiations; however, some analysts and observers had cast doubt on the OPEC meeting.
OPEC oil ministers sought to inspire hope into the market, but the fact that changed the views of analysts about the meeting was remarks by Iranian, Saudi and Iraqi oil ministers.
Before leaving for Vienna, Iran's Minister of Petroleum Bijan Zangeneh made it clear that the country would by no means cut its oil output but would remain committed to OPEC decisions. He also said that he had good proposals for the meeting to reach an accord.
Russia's Energy Minister Alexander Novak had said that Russia, as the top non-OPEC oil producer, was ready to cooperate with the oil producer group in a bid to help prop up oil prices. The Saudi energy minister, Khalid al-Falih had stressed the need for an agreement. Iraqi Oil Minister Jabbar al-Luaibi also said Baghdad would get along with OPEC. Following remarks by the Iraqi minister, the market trend changed, and oil prices gained 8.7% to $50.43 a barrel, an unprecedented increase since February.
1.2mb/d Cut
In its 171st ministerial meeting, OPEC decided to cut 1.2 mb/d from its oil production. Iran was authorized to raise its output by 90,000 b/d over the coming six months, the period of applicability of this production cut.
"That is to say we would be able to increase our production much more than this in the final months because in the first months our production may not increase," said Zangeneh.
After OPEC's agreement was made public, Russia's Novak said his country was ready to slash its oil output by 300,000 b/d in the first half of next year.
"Russia is ready to join the OPEC agreement. Following its recent talks with major OPEC and non-OPEC producers, this country is ready to gradually cut its oil production because a sudden cut in output would cause technical problems for Russia," he said.
Novak expressed optimism about the OPEC deal and said it was a historically important day for his country.
Brent at $53
As soon as news of OPEC deal spread through media, oil prices experienced a big jump. On December 1, North Sea Brent crude prices reached their 16-month highs.
The agreement for OPEC production cut, the first since 2008, pushed Brent prices up to $53.69 per barrel. The West Texas Intermediate (WTI) crude oil also gained 3% to reach $50.91. The OPEC oil basket price rose to $44.8 a barrel. It was the first time OPEC member states were working in coordination with non-OPEC producers like Russia and the Republic of Azerbaijan.
Energy Firms' Stocks Grow
The effects of OPEC's agreement were not limited to the increase in oil prices. Other markets were also affected. Immediately after the agreement was reached, gasoline prices increased in Britain. Analysts in this country warned that fuel prices were likely to grow in coming months and a 5-seated car would cost 5 pounds to gas up.
Market Watch also announced that the shares of energy companies had gained in the stock markets. The energy index hit its highest market in one year.
Victory for Iran
International media showed positive reaction to this deal and described it as Iran's success in realizing its objectives. Fox News reported that 14 member states of OPEC changed into reality the agreement they had reached in September to cut output. OPEC produces one-third of world oil production. Iran, Nigeria and Libya would be exempt from the production cut agreed in the OPEC meeting.
This exemption marks a big victory for Iran. Iran has long been saying that it plans to raise its production in a bid to regain the market share lost during years of international sanctions.
Over recent weeks, Iran's rival Saudi Arabia had to change its position. It agreed to reduce its output by half a million barrels a day. But it asked Iran to freeze its output at 3 mb/d.
Bloomberg said this victory was the result of cooperation between Iran, Saudi Arabia and Russia.
Quota Cuts
Under the OPEC deal, each country would have to reduce its output at a specific level. Saudi Arabia would slash its production by 486,000 b/d, Iraq would cut 210,000 b/d from its output, the United Arab Emirates would account for a 139,000 b/d cut in output, Kuwait for 131,000 b/d, Venezuela for 95,000 b/d, Qatar for 30,000 b/d, Algeria for 50,000 b/d and Angola for 87,000 b/d.