Vienna: Opec yesterday agreed its first oil output cuts since 2008 after Saudi Arabia accepted “a big hit” on its production and dropped its demand on Iran to slash output.
Non-Opec Russia will also join output reductions for the first time in 15 years to help the Organisation of the Petroleum Exporting Countries prop up oil prices.
Brent crude jumped more than nine per cent 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 sceptics 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 said after the decision.
Opec produces a third of global oil, or around 33.6 million barrels per day, and under yesterday’s deal it would reduce output by around 1.2m bpd from January 2017.
Saudi Arabia will take the lion’s share of cuts by reducing output by almost 0.5m bpd to 10.06m bpd. Its Gulf Opec allies – the UAE, Kuwait and Qatar – would cut by a total 0.3m bpd.
Iraq, which had insisted on higher output quotas to fund its fight against Islamic State militants, unexpectedly agreed to reduce production by 0.2m bpd.
Iran was allowed to boost production slightly from its October level. Clashes between Saudi Arabia and Iran dominated many previous Opec meetings.
Opec president Qatar said non-Opec producers had agreed to reduce output by a further 0.6m bpd, of which Russia would contribute some 0.3m.
“Russia will gradually cut output in the first half of 2017 by up to 300,000 bpd, on a tight schedule as technical capabilities allow,” Russian Energy Minister Alexander Novak said in Moscow.