OPEC and allies tentatively agree to cut oil production by 1.2 million barrels per day

Major oil producers have reached a preliminary deal to cut oil production and boost the market, following two days of grueling negotiations and despite opposition from U.S. President Donald Trump.

OPEC is holding talks with allied oil-producing nations including Russia at its headquarters in Vienna, Austria on Friday. The gathering comes after deep divisions in the energy alliance were laid bare at a closely-watched meeting on Thursday, with OPEC unable to agree on the terms of crude output cuts.

The alliance is currently aiming to take 1.2 million barrels per day off the market, Iranian Energy Minister Bijan Zangeneh told CNBC. The 15-member OPEC cartel has tentatively agreed to reduce its output by 800,000 bpd, while Russia and the allied producers are proposing a 400,000 bpd reduction.

“I am sure that they will reach an agreement,” Zangeneh told CNBC while departing OPEC headquarters for the airport.

The roughly two dozen producers entered a closed session to hammer out a final deal around 3 p.m. in Vienna. If they finalize the tentative agreement, it would be roughly in line with expectations for the allies to throttle back output by 1 million to 1.4 million bpd.

The talks made progress on a critical front on Friday, with Russia agreeing to cut output by 200,000 barrels per day, news agencies reported. The 15-member OPEC group had delayed a decision on how many barrels it would take off the market until Moscow committed to a specific reduction.

However, discussions hit an impasse earlier on Friday because Saudi Arabia had refused to agree to an exemption for Iran, OPEC sources told Reuters.

U.S. sanctions against Iran, OPEC’s third-largest producer, have already significantly reduced its exports. Iranian Energy Minister Bijan Zangeneh says his country should not be forced to cut production in light of the sanctions, which are backed by the Saudis.

Zangeneh told CNBC that OPEC has agreed to exempt Iran from cutting production.

Brent crude, the international benchmark for oil prices, was trading at $62.59 a barrel, up 2.5 percent, at 9:20 a.m. ET (1420 GMT). West Texas Intermediate (WTI) stood at $53.52, around 4 percent higher.

The meeting between OPEC and non-OPEC members comes at a time when the oil market is near the bottom of its worst price plunge since the 2008 financial crisis. Oil prices have crashed around 30 percent over the last two months, ratcheting up the pressure on budgets in oil-exporting countries.

The Saudis have been leading calls for the group to trim output, amid surging supply and fears that an economic slowdown will erode fuel demand.

OPEC began capping supply in partnership with Russia and several other nations in January 2017 in order to end a punishing downturn in oil prices. The alliance reversed course and agreed to hike output in June after it removed more barrels from the market than it intended, largely due to the ongoing freefall in Venezuelan output and supply disruptions in Libya.

The Trump administration lobbied for the mid-year production increase as it prepared to restore sanctions on Iran, a policy that has pushed up oil prices throughout much of 2018. Trump has sought to blame OPEC for rising oil prices, ordering the cartel to take action to cut the cost of crude several times this year.

On Wednesday, Trump tweeted that he hoped OPEC would not restrict supply and instead keep oil flowing “as is.”

— CNBC’s
Brian Sullivan
contributed reporting to this story.

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