OPEC reaches deal to cut oil output
Oil soars 6%
ALGIERS, Sept 28, (RTRS): OPEC agreed on Wednesday to cut its oil output for the first time since 2008, with the group’s leader Saudi Arabia softening its stance on archrival Iran amid mounting pressure from low oil prices.
Two sources in the Organization of the Petroleum Exporting Countries said the group would reduce output to 32.5 million barrels per day from current production of 33.24 million bpd.
How much each country will produce is to be decided at the next formal meeting of OPEC in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia, sources said.
“We don’t know yet who’s going to produce what. I want to hear from the mouth of the Iranian oil minister that he’s not going to go back to presanction levels. For the Saudis, it just goes against the conventional wisdom of what they’ve been saying,” said Jeff Quigley, director of energy markets at Houston-based Stratas Advisors.
Saudi Energy Minister Khalid alFalih said on Tuesday that Iran, Nigeria and Libya would be allowed to produce “at maximum levels that make sense” as part of any output limits which could be set as early as the next OPEC meeting in November.
That represents a strategy shift for Riyadh, which has said it would reduce output to ease a global glut only if every other OPEC and non-OPEC producer followed suit. Iran has argued it should be exempt from such limits as its production recovers after the lifting of EU sanctions earlier this year.
The Saudi and Iranian economies depend heavily on oil but in a post-sanctions environment, Iran is suffering less pressure from the halving in crude prices since 2014 and its economy could expand by almost 4 percent this year, according to the International Monetary Fund.
Riyadh, on the other hand, faces a second year of budget deficits after a record gap of $98 billion last year, a stagnating economy and is being forced to cut the salaries of government employees.
Oil prices jumped as much as 6 percent on Wednesday after OPEC sources said the group has reached a deal to limit crude output at its policy meeting in November, a source for the producer group said.
Brent crude was up $2.76, or 6 percent, at $48.73 a barrel by 2:28 p.m. EDT (1820 GMT), after reaching a more than two-week high of $48.96.
US West Texas Intermediate (WTI) crude rose by $2.35, or 5.4 percent, to $47.02, peaking at $47.45, its highest since Sept 8.
“This was unexpected for sure ... no one that I know of saw it coming. The market doesn’t seem positioned for it. The fundamentals in the US are already tighter than we expected and is due to get tighter,” said Scott Shelton, energy broker and commodities specialist for ICAP in Durham, North Carolina.