OREANDA-NEWS. December 14, 2016. The global oil market will return to balance by the second or third quarter of next year, following agreements by major producing nations to curb output, Opec secretary-general Mohammed Barkindo said today.

A group of producing countries from outside Opec, led by Russia, agreed with Opec ministers on 10 December to limit their output by a combined 558,000 b/d as of the start of January for six months in support of Opec's 1.2mn b/d cut.

It brings the total cuts pledged by Opec and non-Opec producers to almost 1.8mn b/d. Opec's 1.2mn b/d cut, which will also remain in force for six months, will be made by 10 out of the organization's 14 members.

The objective behind the agreement was to "assist the market" in bringing supply and demand back into balance sooner, Barkindo said. The market would have eventually balanced, but given the oversupply "some intervention was required that I must confess took us too long to bring this consensus among countries with different objectives and interest," Barkindo said today during a discussion hosted by the Washington-based think tank Center for Strategic and International Studies.

But Opec is not targeting a specific price level, and has instead switched to quotas.

"We project to see accelerated stock withdrawals," Barkindo said. "I can tell you that the current price level is a little far from the equilibrium but the equilibrium will be found by the market at a new level."

The possibility of further increases in production from Nigeria and Libya, which together added 100,000 b/d in November, could make Opec's 32.5mn b/d total production target harder to attain. But Barkindo said the monitoring committee early next year will discuss a compliance mechanism for adjusting the agreed cuts to take into account the higher output. Kuwait chairs the monitoring committee, which also includes Algeria, Oman, Russia and Venezuela.

Creating the global alliance among producers will help ensure "some level of stability" in oil markets in the short, medium and the long term that will ensure sustained investments in the sector, particularly in exploration and production, Barkindo said.

The prolonged market downturn that began in 2014 and led prices to fall as low as \\$26/bl early this year has resulted in global oil and gas investments declining to a little over \\$300bn this year from \\$550bn last year and \\$700bn in 2014, John Hess, chief executive of Hess, said in the same event. Investments for next year are expected to be around \\$380bn.

"This new agreement will incentivize future investments in oil and gas," Hess said. "We had a stubborn glut."

Opec already was hoping to establish a "meaningful dialog" with the US administration and key financial institutions to explain its new strategy and production cuts, Barkindo said. The pending arrival of the new administration, led by president-elect Donald Trump and potentially including ExxonMobil chief executive Rex Tillerson as secretary of state, can only facilitate such discussions, he said.

Barkindo is planning to meet staff from the US Commodity Futures Trading Commission today to "be educated on the regulatory environment." He will travel to New York City tomorrow for meetings with "a select group of hedge funds" to explain Opec's strategy.

Barkindo explains the outreach to the financial traders and hedge funds by the "staggering" growth of over-the-counter volumes, compared with a relatively stable increase in physical demand for oil. "It tells us we should explore [the financial world] and explain our thinking," in a pursuit of achieving market stability, Barkindo said.