OPEC and allies led by Russia on Thursday agreed one of the deepest output cuts this decade to prevent oversupply in a deal that will apply for an unexpectedly short period of the first three months of 2020.
The Organization of the Petroleum Exporting Countries (OPEC) began a meeting to discuss policy in Vienna at 1630 GMT. On Friday, OPEC will meet with Russia and other producers, a group known as OPEC+.
Existing supply curbs of 1.2 million barrels per day, aimed at supporting oil prices and preventing a global glut, are set to expire in March.
Russian Energy Minister Alexander Novak said a panel of energy ministers including Saudi Arabia and Russia had recommended OPEC+ deepen the cuts by 500,000 bpd. A cut of 1.7 million bpd would amount to 1.7% of global supply.
“We really do see some risks of oversupply in the first quarter due to lower seasonal demand for refined products and for crude oil,” Novak said.
He said cuts would last through the first quarter of 2020, a shorter timeframe than suggested by some OPEC ministers, who have called for extending cuts until June or December 2020 amid fears of a slowing global economy.
OPEC+ has agreed voluntary supply cuts since 2017 to counter booming output from the shale fields of the United States, which has become the world’s biggest producer.
Washington has forced an even steeper reduction in supply through sanctions on OPEC members Iran and Venezuela aimed at choking both countries’ oil export revenue.
Producers face another year of rising output from the United States along with other non-OPEC producers Brazil and Norway.
“With a weaker U.S. dollar, improving economic data and OPEC aggressively managing supply, this should ensure a $60-$65 Brent oil price in the seasonally weak period of next year,” said Gary Ross, founder of Black Gold Investors.
OPEC’s actions have supported oil prices at around $50-$75 per barrel over the past year. Brent crude futures on Thursday extended this week’s gains to trade above $63 per barrel.