Non-Opec countries agree to cut oil output

Eleven oil-making countries, who are not members of the Opec (Organization of Petroleum Exporting Countries) oil cartel, have agreed to cut their output to boost prices.

The news will be welcome by the biofuels industry as it eases pressure on the sector.

The group of states, which includes Russia, said on 10 December that they will cut supplies by 558,000 barrels per day.

Opec announced last month that it would be slashing its own production to ease an oversaturated global market.

It is the first time in 15 years that a global pact has been made.

"I am happy to announce that a historic agreement has been reached," said Qatar's Energy Minister, Mohammed Bin Saleh Al-Sada, whose country holds Opec's rotating presidency.

Opec has already committed to halting the supply of 1.2 million barrels a day, starting from January.

Opec said then it was seeking for non-member states to also lower their output, and Russia had signalled it would co-operate.

The moves come after more than two years of depressed oil prices, which have more than halved since 2014 from around $100 per tonne to $40 per tonne, due to a supply glut on the market.

Michael Bradshaw, of Warwick Business School, is a Professor of Global Energy, and researches the geopolitics of the oil and gas industry, particularly Russia.

Speaking about the news, Professor Michael Bradshaw said: "Predictably, the price of oil has risen because of the oil producing states agreeing to cut back on production to re-balance an over-supplied market. But most commentators still see uncertainty and volatility in the coming year.

"Two factors are key on the supply side: first, will the agreement hold? Second, how will tight oil production in the US respond? As the price goes up, so the rigs will start up. There is also uncertainty on the demand side, the global economy is now less energy and oil-intensive than it used to be and sluggish economic growth means that demand will not grow rapidly. Overall, the good news for oil exporting states will be balanced by the bad news for oil importing states.

"Oil is priced and traded in US dollars and for the UK the weakness of the pound has already meant that it is paying more for the oil and gas that it imports. Higher crude oil prices will compound that problem adding to inflationary pressures in the economy. However, higher oil prices will be good news for the beleaguered companies operating in the North Sea.

"The current agreement is only for 6 months and decisions about investment in oil and gas are based on a 20-30 year view of future demand. On that time scale, none of the uncertainties are addressed by the current agreement and oil exporting states need a strategy beyond achieving a short-term agreement on production - they need to start preparing for a world after fossil fuels. 

"The same is true for consumers who should use higher prices to promote energy efficiency and demand reduction."

 

This story was written by Liz Gyekye, editor of Biofuels International.