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Revealed: OPEC will agree to cut at least 1 million bpd of oil

This is not a prediction but rather a sure fact that even US President Donald Trump can’t negotiate, no matter how good he is at the Art of the Deal.

At least 1 million barrels per day will be cut, and likely 0.2-0.4 million more, as OPEC’s answer to dropping oil prices and to combat a slower global economy and potential supply glut thanks to US shale oil pumps.

CNBC says Brent crude was at $61.28 a barrel in early London down around 0.5%, while West Texas Intermediate (WTI) stood at $52.63, more than 0.4% lower.

“Oil prices have crashed around 30% over the last two months, ratcheting up the pressure on budgets in oil-exporting countries,” says CNBC.

Expert: OPEC needs a “shock and awe” output cut in Vienna

Here’s what will unfold   

Oil output from the world’s biggest producers, OPEC, Russia and the US, has increased by a 3.3 million bpd since the end of 2017, to 56.38 million bpd, for almost 60% percent of global consumption.

The cartel will meet today at its headquarters in Vienna, Austria, with the aim of reaching an accord over production levels for the next six months.

The 15-member organization will then hold talks with allied non-OPEC partners a day later on Friday, with markets widely-expecting the energy alliance to announce steep output reductions from January, according to CNBC.

“The likely outcome is OPEC and non-OPEC members agree to a supply cut of around 1.2 million to 1.4 million barrels per day,” it said.

Read: Oil pundits looking at Dec. G20, OPEC meetings for price scenarios

What analysts are saying

Helima Croft, global head of commodity strategy at RBC Capital Markets told CNBC TV: “There is concern in the market out there that US President Donald Trump is going to lean very heavily on the Saudis to do nothing but it is in the Saudis’ own domestic interest to pull these barrels. A million is essentially what we are going to start from in terms of a cut,” Croft said.

Peter McGuire, CEO of XM Australia, said: “…crude prices have been hit massively on the downside, (and) there would be a fear amongst OPEC members that is they are going to continue to slide to $45 per barrel for West Texas Intermediate (WTI) and possibly sub-$55 per barrel for Brent in the short-term leading up to Christmas, which could create major panic and you could see further softening.”

Hussein Sayed, Chief Market Strategist at FXTM,  said a few months ago, some investors speculated that oil prices could reach $100 per barrel in 2018. Sanctions on Iran, shortages in supplies, strong demand, and an all-time low in spare capacity were all factors contributing to driving prices to new highs.

“This proved to be a bad speculation. After OPEC’s meeting in June, the cartel decided to ramp up production to meet any supply shortages. What happened next was the U.S. issuing eight countries for waivers before sanction on Iran kicks off, global demand seemed to have abated, and production in the U.S., Saudi Arabia, and the United Arab Emirates reached a new high,” he said, explaining why these factors combined to create a free fall in prices.

“So, expect the cut to be anywhere between 1 – 1.5 million barrels per day from November’s level, and the situation will be re-evaluated in 2019. Under this scenario prices may remain range bound until year-end.”

Read: How low could oil go? Could Brent crude limp to $60?

Saudi and Russia leading the cuts

Saudi Arabia has indicated it wants OPEC+ to curb output by at least 1.3 million barrels per day, or 1.3 percent of global production, according to Reuters

“Riyadh wants Moscow to contribute at least 250,000-300,000 bpd to the cut but Russia insists the amount should be only half of that,” OPEC and non-OPEC sources told Reuters.

Russia’s TASS news agency quoted an OPEC source as saying OPEC and its allies were discussing the idea of reducing output next year by reverting to production quotas agreed in 2016.

“Such a move would mean cutting production by more than 1 million bpd,” said Reuters.

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 Read: Can OPEC’s December meeting stall the oil price plunge?

US pressures

“Hopefully OPEC will be keeping oil flows as is, not restricted. The world does not want to see, or need, higher oil prices!” Trump wrote in a tweet on Wednesday.

The US may force OPEC’s hand.

The NOPEC legislation being discussed by U.S. lawmakers could make it possible to sue Saudi and other OPEC members for price fixing.

CNBC said the Middle East-dominated OPEC produces around 40% of the world’s oil and has a long history of adjusting production to guide the energy market.