Organization of Petroleum Exporting Countries (OPEC) agreed on Wednesday to reduce production for the first time since the financial crisis in 2008 and the barrel price of crude oil rose by 8% to $50, according to the Financial Times (FT). The agreement comes after Saudi Arabia and its Gulf allies have supported major reductions in production, and Iran has agreed to a freeze of production. The meeting is on going at OPEC headquarters in Vienna in order to finalize details of the agreement, but sources who wished to remain anonymous said that the main obstacles were overcome.
The 13 members of the cartel will reduce production by about 4.5%, or 1.2 million bpd to 32.5 million bpd, and production targets will be established for each of the OPEC member states. Analysts expect Saudi Arabia to perform the most significant reduction in production, along with its allies in the Gulf. In exchange, Iran would freeze its production to around 3.8 million bpd.
Following the announcement of OPEC, the price of Brent oil with delivery in January rose by about 8% to the $50 threshold for the first time since October. Since the middle of 2014, the price of a barrel of oil was halved due to overproduction. Also, Dow Jones Stock Exchange on Wall Street rose by 0.4%.
Two months ago, in Algiers, OPEC ministers agreed in principle on a reduction of production cartel to 32.5 to 33 bpd, from 33.64 million bpd currently, in order to support the falling price of oil. OPEC said then that Iran, Libya and Nigeria shall not be obliged to reduce their production because the oil industries of these countries have been affected by internal tensions and international sanctions. This preliminary agreement is considered a victory for Iran given that authorities in Tehran intend to increase its production for recovering the lost market share following Western sanctions, a market share occupied by rival Saudi Arabia.
Russia and the non OPEC producers align to the decision of reducing production
Russia and other producers who are not members of OPEC will join measures for reducing oil production announced by the organization, and will reduce offer by 600,000 barrels per day, EFE news agency announced. The decision was announced on Tuesday by President of the Organization of Petroleum Exporting Countries (OPEC), Mohamed Bin Saleh al-Sada, at a press conference in Vienna, according to Agerpres.
“I am pleased to announce that Russia has pledged to cut production by 300,000 barrels per day,”, said Mohamed Bin Saleh al-Sada (Energy Minister in Qatar), at the end of the 171st ministerial conference of OPEC.
Supply reduction, which will be sealed at a meeting to be held on 9 December in Doha, will thus be of 1.8 million barrels per day.
“Many countries (non OPEC producers) are willing to cut production and 600,000 barrels it is a more than realistic figure, I believe. Russia will assume a reduction of 300,000 barrels per day,” said Minister from Qatar, according to Agerpres.