OPEC's 28 December decision to accept an output cut of 462,500 barrels a day (b/d) by non-OPEC producers and cut production itself by 1.5 million b/d has somewhat strengthened the market. However, poor quota compliance has dulled the bullish effect of the cut and OPEC is taking steps to clamp down on violators.
The new OPEC cut is to be carried out on a pro-rata basis, with Saudi Arabia seeing its production fall by the largest margin of 488,000 b/d. The smallest cut is to be made by Qatar, which is trimming output by just 39,000 b/d. The cuts are nominally effective from 1 January but, although members have been preparing themselves in expectation of a cut, it will be difficult to meet quotas for several weeks.
Overproduction is hindering the organisation's aim of bringing the oil price to its preferred band of $22-28 a barrel. Nigeria has proved the worst culprit, with recent figures showing it has been producing some 300,000 b/d over its quota, accounting for about 50 per cent of OPEC overproduction.
Prices in early January remained below $20 a barrel of benchmark Brent crude, after having climbed about $1.50 a barrel in expectation of the cut. The price had also been buoyed by a change of weather in the US, where a new cold snap has created an increase in demand for fuel.
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