Opec agrees to shock oil output cut deal
THE Organisation of the Petroleum Exporting Countries (Opec) shocked markets with a deal to cut oil output after kingpin Saudi Arabia allowed bitter rival Iran to be exempted, but analysts warned yesterday the move would not likely have a lasting impact.
The cartel’s announcement of the first reduction in eight years sent crude prices surging up to 6% yesterday, while energy firms in the US and Asia followed suit with huge gains.
At the end of six hours of negotiations and weeks of horse trading, Opec announced the plan to cut production to 32.5-33 million barrels per day from the 33.47 million in August, the International Energy Agency said.
The deal, in Algiers during an informal meeting with Russia, was hammered out after the group’s biggest producer Saudi Arabia agreed Iran, which is ramping up output after years of Western economic sanctions, would be exempted from the cut.
A Saudi-led effort to freeze output collapsed in April after Iran refused to participate in a reduction.
“It is Saudi Arabia who has clearly blinked first, allowing Iran, its main rival, to ramp up production,” senior market analyst at OANDA Jeffrey Halley said.
“These two don’t see eye to eye on anything, so this is a huge concession by Saudi Arabia to ‘lubricate’ the process.”
Saudi Arabia and Iran are at odds over an array of issues including the wars in Syria and Yemen.
But analysts said economic pressure from falling oil revenues pushed Opec members to reach a deal, while others warned Opec has a poor track record of fulfilling such commitments, and traders are not sure if Saudi-Iran cooperation would hold.
Details, including which countries make which cuts, will be worked out when 14member Opec – which produces about 40% of the world’s crude – holds its next twiceyearly meeting in Vienna on November 30.
The cartel’s richer members, particularly the Gulf states, had preferred to battle it out with non-Opec producers such as the US for global market share by keeping production high.
Its refusal to make cuts in the past had contributed to a slump in prices from more than $100 (R1 376) a barrel in June 2014 to near 13-year lows of below $30 (R412) in early 2016. — AFP