Saudi Arabia and Russia won backing for further output cuts from OPEC and allied crude producers on Friday as they look to head off global oversupply in 2020 and sustain prices.
The group of more than 20 producers agreed to an extra 500,000 barrels per day (bpd) in cuts for the first quarter of 2020, taking the total to 1.7 million bpd, or 1.7% of global demand, Reuters reported.
The Organization of the Petroleum Exporting Countries and allied producers, the so-called OPEC+, pump more than 40% of the world's oil. They held a closed-door meeting to thrash out how the additional cuts will be distributed.
OPEC is likely to shoulder approximately 340,000 bpd in fresh cuts and non-OPEC producers an extra 160,000 bpd, one source said on Friday.
Oil moved higher on Friday. US West Texas Intermediate crude futures gained 1.7% to trade at $59.40 a barrel. Brent $1.10, or 1.8%, to $64.51.
Prices spiked as Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said the nation would continue to exceed its quota by 400,000 barrels a day, which means the overall production cut will actually be closer to 2.1 million barrels a day.
Russian Energy Minister Alexander Novak said at a press conference on Friday that Moscow’s quota will be 300,000 bpd during the first three months of 2020. This measurement excludes gas condensate — a high-value light crude extracted as a by-product of gas production.
OPEC+ will deepen cuts for the first three months of 2020, shorter than the six- or 12-month scenarios some OPEC members wanted.
The cuts offset an expected increase from countries that are not part of OPEC+, including top producer the United States.
OPEC met on Thursday in Vienna, deliberating policy for more than five hours. The length of the meeting prompted the cancellation of a news conference and a gala dinner for delegates aboard a boat on the Danube.
Eleven of OPEC's 14 member states are participating in the supply curbs. Iran, Libya and Venezuela are exempt.
OPEC+ adds Russia and nine others – Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, South Sudan and Sudan.
One sticking point has been compliance, with Saudi Arabia cutting more than required in order to offset overproduction from Iraq and Nigeria.
"A scenario where the Saudis 'absorb' the majority of a 500,000 bpd cut and formalize their target at current output levels would not be impactful to the market – unless Iraq and Nigeria come into compliance with their targets," said analysts from Jefferies.
ING bank analysts said the key question was whether the new cuts were real or just a matter of Saudi Arabia formalizing its current over-compliance.
"Obviously, if it is the latter, the market will be disappointed, as this will do little to eat into the surplus over the first quarter," ING said.
Meanwhile, Iran backed Russia’s request from OPEC that oil condensates should not be included in the country's overall output figures as others suggested that Moscow was violating a pact meant to reduce the global supply.
Iran’s Oil Minister Bijan Namdar Zanganeh said on Thursday that Russia was rightfully demanding that condensates should be excluded from output figures if quotas set by the organization are to be properly respected in the future.
“Our issue in the OPEC is not the condensates but it is crude. It is not fair that we ask Russia to observe what we do not have in OPEC calculations and equations” said Zanganeh.
“Although Russia is not an OPEC member, but it should be treated the way other OPEC members are treated,” he added.
Reuters, CNBC and Press TV contributed to this story.