OPEC agrees to cut out­put to push up oil price

Jamaica Gleaner - - ENTERTAINMENT -

OPEC HAS agreed to cut its oil production for the first time in eight years, end­ing a strat­egy of high sup­ply that had aimed to crip­ple the United States en­ergy in­dus­try but also led to decade-low prices and drained the bud­gets of crude-pro­duc­ing na­tions.

The car­tel will cut 1.2 mil­lion bar­rels a day from its present out­put after its 14 mem­bers put aside dif­fer­ences at a meet­ing on Wed­nes­day to agree on in­di­vid­ual production lev­els.

The move, which will leave OPEC out­put at 32.5 mil­lion bar­rels a day, is to take ef­fect in Jan­uary, said OPEC Pres­i­dent Mo­hammed Bin Saleh Al-Sada.

Al-Sada said ma­jor nonOPEC pro­duc­ers were ready to act in con­cert by ten­ta­tively plan­ning to re­duce their out­put. He did not list the coun­tries in­volved be­yond say­ing that Rus­sia was pre­pared to cut 300,000 bar­rels from its out­put of more than 10 mil­lion bar­rels a day.

Al-Sada also an­nounced that In­done­sia had sus­pended its mem­ber­ship rather than agree to its share of cuts.

The price of crude, which had soared ear­lier in the day amid an­tic­i­pa­tion of a deal, re­mained firm after the news. The in­ter­na­tional bench­mark was up US$3.48, or 7.4 per cent, at US$49.86 a bar­rel.

A production cut could have a last­ing im­pact on con­sumers as oil price in­creases feed into the cost of car fuel, heat­ing and elec­tric­ity. It could also re­store some au­thor­ity to OPEC as an ar­biter of prices and sup­plies after years of in­ac­tion.

OPEC had for years been Mo­hammed Bin Saleh Al-Sada (left), min­is­ter of en­ergy and in­dus­try of Qatar and pres­i­dent of the OPEC Con­fer­ence, talks with Mo­ham­mad Sanusi Barkindo, OPEC sec­re­tary gen­eral of Nige­ria.

un­der­mined by in­fight­ing but also stayed away from production cuts in or­der to not lose

mar­ket share to the resur­gent US oil in­dus­try.

The flood of sup­ply from non-OPEC coun­tries like the US and Rus­sia saw crude plunge from over US$100 a bar­rel in June of 2014.

The car­tel re­fused to cut out­put, how­ever, know­ing that US production was prof­itable at high prices — and an­tic­i­pat­ing that the drop would put many US-pro­duc­ing com­pa­nies out of business and re­store some of OPEC’s global mar­ket share.

The re­sult was that oil fell be­low US$30 in Jan­uary for the first time in over a decade. While it did re­duce US production, it also caused re­ces­sions in many oil-pro­duc­ing na­tions, in­clud­ing Rus­sia, Brazil, and OPEC mem­ber Venezuela.

While the price of oil rose Wed­nes­day, an­a­lysts say they will not re­store them to the lev­els over US$100 a bar­rel.

One of the big­gest hur­dles to Wed­nes­day’s deal had been a ri­valry be­tween Saudi Ara­bia and Iran, whose strug­gle for dominance in the Mideast is also play­ing out in the Or­gan­i­sa­tion of Petroleum Ex­port­ing Coun­tries.

The Saudis have long been hes­i­tant to shoul­der the lion’s share of a cut, while Iran has re­sisted re­duc­ing its own production. It ar­gues that it has yet to re­cover its out­put lev­els hit by years of sanc­tions.

Al-Sada said that Sau­dia Ara­bia, the big­gest OPEC pro­ducer, will cut 486,000 bar­rels from its production of more than 10 mil­lion bar­rels a day. Iran’s out­put level was trimmed only slightly to 3.797 mil­lion bar­rels a day from 3.975 mil­lion bar­rels.

AP

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