‘This is a major step forward’: Oil firms to cut output
VIENNA Oil prices spiked sharply higher Friday as major oil producers, including the OPEC cartel, agreed to cut global oil production by 1.2 million barrels a day to reduce oversupply.
Following two days of meetings, the Organization of the Petroleum Exporting Countries that includes the likes of Saudi Arabia and Iraq said they would cut 800,000 barrels per day for six months from January, though some countries such as Iran, which is facing wide-ranging sanctions from the United States, have been given an exemption.
The balance will come from Russia and other non- OPEC countries. The U.S., one of the world’s biggest producers, is not part of the deal.
“This is a major step forward,” said United Arab Emirates’ Energy Minister Suhail Mohamed al-Mazrouei, who is also president of the OPEC Conference.
Oil producers have been under pressure to reduce output after a sharp fall in oil prices over the past few months. The price of oil has fallen about 25 per cent because major producers — including the U.S. — are pumping oil at high rates.
The cut has met with the response hoped for by ministers as it was at the upper end of most predictions. After the announcement, Brent crude, the international standard, was up US$2.79 a barrel, or 4.7 per cent, at US$62.85. Benchmark New York crude was US$2.11, or 4.1 per cent, higher at US$53.60 a barrel.
Ann-Louise Hittle, a vice-president at oil industry expert Wood Mackenzie, said the cut “would tighten” the oil market by the third quarter next year and help lift Brent prices back above US$70 per barrel.
“For most nations, self-interest ultimately prevails,” she said. “Saudi Arabia has a long-term goal of managing the oil market to avoid the sharp falls and spikes which hurt demand and the ability of the industry to develop supply. On top of this, Saudi Arabia also needs higher oil revenues to fund domestic Saudi spending.”
Russian Energy Minister Alexander Novak said the decision “should help the market reach a balanced state.”