OPEC agrees first oil output cuts since 2008

“I think it is a good day for the oil markets, it is a good day for the industry and ... it should be a good day for the global economy," said Saudi Energy Minister Khalid al-Falih. (Reuters)

OPEC agreed on Wednesday its first oil output cuts since 2008 after Saudi Arabia accepted “a big hit” on its production and dropped its demand on arch-rival Iran to slash output.

Non-OPEC Russia will also join output reductions for the first time in 15 years to help the Organization of the Petroleum Exporting Countries prop up oil prices.

Brent crude jumped over 9 percent to more than $50 a barrel as Riyadh reached a compromise with Iran and after fast-growing producer Iraq also agreed to curtail its booming output.

“OPEC has proved to the skeptics that it is not dead. The move will speed up market rebalancing and erosion of the global oil glut,” said OPEC watcher Amrita Sen from consultancy Energy Aspects.

Saudi Energy Minister Khalid al-Falih said ahead of the meeting that the kingdom was prepared to accept “a big hit” on production to get a deal done.

“I think it is a good day for the oil markets, it is a good day for the industry and ... it should be a good day for the global economy. I think it will be a boost to global economic growth,” he told reporters after the decision.

OPEC produces a third of global oil, or around 33.6 million barrels per day, and under the Wednesday deal it would reduce output by around 1.2 million bpd from January 2017.

Saudi Arabia will take the lion’s share of cuts by reducing output by almost 0.5 million bpd to 10.06 million bpd. Its Gulf OPEC allies - the UAE, Kuwait and Qatar - would cut by a total 0.3 million bpd.

Iraq, which had insisted on higher output quotas to fund its fight against ISIS, unexpectedly agreed to reduce production - by 0.2 million bpd.

Iran was allowed to boost production slightly from its October level, which Tehran has long argued it needs to regain market share lost under Western sanctions.

A veteran OPEC watcher and founder of Pira consultancy Gary Ross said oil could rise to $55 per barrel. 

Non-OPEC producers 

Falih had long insisted OPEC would do an output-limiting deal only if non-OPEC producers contributed.

OPEC president Qatar said non-OPEC producers had agreed to reduce output by a further 0.6 million bpd, of which Russia would contribute some 0.3 million.

Russia, which had long resisted cutting output, pushed its production to new record highs in recent months.

A combined output reduction of 1.8 million bpd by OPEC and non-OPEC represents almost 2 percent of global output and would help the market clear a stocks overhang, which had sent prices crashing from levels as high as $115 a barrel seen in mid-2014.

Non-OPEC Azerbaijan and Kazakhstan have said they might also cut.

OPEC will hold talks with non-OPEC producers on Dec. 9. The organization will also have its next meeting on May 25 to monitor the deal and could extend it for six months, Qatar said.

An OPEC source said the agreement was in line with an accord reached in Algiers in September.

The Organization of the Petroleum Exporting Countries started a meeting at 0900 GMT on Wednesday at its Vienna headquarters to discuss terms of a potential deal to cut production in an effort to prop up prices that have fallen by more than half since 2014 due to oversupply.

A preliminary agreement struck in Algiers in September set an output cap at around 32.5-33 million barrels per day compared with the current 33.64 million bpd

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Last Update: 18:40 KSA 21:40 - GMT 18:40
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