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Cut of 1.2m bpd agreed in Vienna

Opec to contribute two-thirds of total production cut, with other key producers weighing in

A cut of 1.2 million barrels per day in oil production has been agreed between Opec and key non-Opec producing countries.

The majority of the cut - 800,000 bpd - is to come from Opec, with other producers to curb output by a cumulative 400,000 bpd.

No timeline has been put on the duration of the cut, with Opec also failing to disclose a breakdown of how much each of its members will curtail their output.

However, the deal will be reviewed in April.

Iran and Libya have been exempted from Opec's cuts, while it is also thought Venezuela has been exempted.

It is thought that Opec kingpin Saudi Arabia will bear the largest burden of cuts in the cartel, with key allies United Arab Emirates and Kuwait also likely to be picking up a relatively large portion of the total.

Non-Opec producers are meeting in Vienna on Friday afternoon, after which it is expected more details will be given.

Russia is expected to be the largest contributor to the 400,000 bpd cut among key non-Opec producers, with indications that it will contribute 200,000 bpd to the total.

The non-Opec producers were earlier on Friday at an impasse as regards cuts, before Russia stepped in and a deal on a cut was agreed.

All of the cuts are from the October baseline.

News of the cuts has buoyed oil prices on Friday afternoon, with Brent crude up almost 5% on the day at $63.15 per barrel at around 2:45pm GMT, with WTI at $53.92

With Opec failing on Thursday to agree details on a cut in production, although coming to a tentative agreement that there will be curbs on output, the group met again in the Austrian capital on Friday morning ahead of a meeting with select non-Opec producers, primarily Russia.

Investec's head of commodities Callum MacPherson said in a market note after the decision to cut 1.2 million bpd: "With the attention increasingly focused on the Saudi conundrum, the market (which has reacted positively so far) seems to have forgotten Iran, where the fall in oil exports accelerated last month.

"Today’s Opec+ cut, reported to be 1.2 million bpd – which is still subject to ratification in the closed session currently under way – could put the market into a moderate deficit in 2019 when the continued fall in Iranian exports, and recent cuts announced by Canada, are taken into account.

"While it might take the market some time to digest this development, there is scope for an unwinding of the sell-off we have seen in recent weeks, which might see Brent returning to a $70 per barrel-plus level."

UK-based energy consultancy Wood Mackenzie said the fact a deal has been agreed is no surprise.

Vice president of macro oil Ann-Louise Hittle said: "The decision is likely to be met with support from some US producers who were concerned that without a deal, WTI prices would fall further, possibly curtailing 2019 drilling activity.

“A production cut of 1.2 million bpd would tighten the oil market by the third quarter of 2019 and cause prices to rise back above $70 per barrel for Brent.

“It would help producers contend with the strength of US supply growth in 2019 when we expect a year-on-year increase of 2.4 million b/d in non-Opec production as US supply continues to gain sharply.

“That compares to our forecast for oil demand to increase by just 1.1 million bpd in 2019, leaving little room for a significant increase in Opec production next year and making a production cut necessary to stabilise prices.

"For most nations, self-interest ultimately prevails.

“Saudi Arabia has a long-term goal of managing the oil market to avoid the sharp falls and spikes which hurt demand and the ability of the industry to develop supply. On top of this, Saudi Arabia also needs higher oil revenues to fund domestic Saudi spending.

“For the US, oil prices already oil prices have fallen from $85 to $60 a barrel for Brent easing pressure on consumers.”

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