The Asian financial crisis began in July 1997 and spread across East and Southeast Asia, sharply slowing regional growth. Because the region was a major source of oil-demand growth, the crisis helped weaken global demand expectations and contributed to downward pressure on crude prices heading into 1998.
On December 1, 1997, OPEC agreed to raise its production quota by about 10%. The increase added supply to a market that was already facing weaker demand growth, worsening the imbalance that would become clear in 1998.
On March 22, 1998, key producers (including Saudi Arabia and Venezuela) reached an agreement in Riyadh with non-OPEC Mexico to pursue coordinated output reductions. The move aimed to counter a growing supply glut and stabilize prices, and it set the stage for formal action at OPEC’s emergency meeting in Vienna.
At an emergency meeting in Vienna (reported March 31, 1998), OPEC members affirmed a plan to cut output by about 1.245 million barrels per day, with additional cuts pledged by several non-OPEC exporters. The cuts were intended to lift prices but faced skepticism because inventories were already high and compliance was uncertain.
The March 1998 cut package was scheduled to begin on April 1, 1998. Even with the planned reductions, the market remained oversupplied, and prices continued to struggle because demand growth was weaker than expected and stocks were elevated.
On June 24, 1998, OPEC agreed to cut production again—about 1.355 million barrels per day—on top of the earlier 1998 reductions. The decision reflected continued price weakness and recognition that earlier actions had not been enough to rebalance the market.
The June 1998 agreement took effect on July 1, 1998, and was designed to last for about a year. Reporting at the time noted that prices still “scoffed” at the cutbacks, reflecting doubts about producer discipline and the scale of accumulated inventories.
By September 1998, industry analysis highlighted how low prices and oversupply were straining OPEC government budgets. Factors cited included the earlier quota increase, a warm Northern Hemisphere winter, rising Iraqi exports, and reduced demand tied to East Asia’s crisis.
At a late-November 1998 meeting in Vienna, OPEC ministers ended talks without agreement on new strategies or tougher output limits. The failure underscored internal divisions and contributed to continued market pessimism during a period of very low prices.
In early 1999, OPEC’s reference basket price remained extremely low, averaging about $10 per barrel in February 1999. These price levels helped intensify pressure for a more credible, enforceable production-cut agreement.
On March 12, 1999, major producers negotiated an outline agreement in The Hague to reduce supply, with the goal of lifting prices and drawing down excess inventories. These talks were important because they helped align key OPEC members and encouraged cooperation from several non-OPEC producers.
On March 23, 1999, OPEC ministers in Vienna agreed to cut production by about 1.7 million barrels per day, beginning April 1 and continuing for a year. The agreement aimed to eliminate the glut, restore confidence in producer discipline, and move prices toward OPEC’s stated targets.
In late March 1999, non-OPEC producers (including Mexico, Norway, Oman, and Russia) pledged additional reductions—about 400,000 barrels per day—alongside OPEC’s new limits. The broader coalition mattered because it increased the total scale of supply restraint and improved the credibility of rebalancing efforts.
On April 1, 1999, the new OPEC limits began, designed to last a full year. With both OPEC and several non-OPEC exporters participating, the policy marked a turning point from the failed 1998 efforts toward a more coordinated market-rebalancing strategy.
1998–1999 OPEC Production Cuts and Market Rebalancing