Opec output cut deal sends oil prices soaring

Opec defied expectations yesterday and nailed down its first joint output cut since 2008 after tough talks in Vienna, sending oil prices soaring.In late London trade Brent North Sea crude for January delivery was up $3.71 at $50.09, the first time it has risen above $50 in a month. West Texas Intermediate was up $3.85 at $49.08.The accord announced by the Organisation of the Petroleum Exporting Countries is aimed at reducing a global supply glut that has kept prices painfully low.It represents a dramatic reversal from Opec’s Saudi-led strategy, introduced in 2014, of flooding the market to pressure rivals, in particular US shale oil producers.The organisation will lower its monthly output by 1.2mn barrels per day (bpd) to 32.5mn bpd from January 1, Qatar’s Energy and Industry Minister and president of the Opec conference said.“This is a major step forward and we think this is a historic agreement, which will definitely help rebalance the market and reduce the stock overhang,” HE Dr Mohamed bin Saleh al-Sada told a news conference.He also said that the deal will help global inflation accelerate to a “more healthy rate”, including in the United States.According to an Opec statement, Saudi Arabia will reduce output by 486,000bpd from October levels to 10.1mn bpd.Iraq will cut by 210,000 bpd to 4.4mn bpd and UAE 139,000 to 2.9mn bpd.It finalises a preliminary deal struck in September in Algeria when Opec agreed to cut production but left the details to clear up later.Negotiations got bogged down between Opec’s three biggest producers, Saudi Arabia, Iraq and Iran, on who would do the heavy lifting.Iraq had said it was short of money to fight Islamic State group extremists, while Iran wants to hike output to levels before it was hit by Western sanctions over its now-reduced nuclear programme.Iran will actually increase production by 90,000bpd to 3.8mn bpd under the deal.Oil Minister Bijan Namdar Zanganeh flashed a victory sign to reporters as he left Opec headquarters.Libya and Nigeria are exempted, while Indonesia has suspended its membership.Focus will now turn to Opec’s efforts to get non-members, in particular Russia, to reduce their output by a hoped-for 600,000bpd.Russia had said it was ready only to freeze production but al-Sada said yesterday that Russia has committed to reducing its output by 300,000bpd.Russian Energy Minister Alexander Novak later confirmed that Russia was ready to cut its own oil production by 300,000 barrels a day next year.Russian oil production in recent months has not stopped growing and exceeds 11mn barrels per day, the highest since the collapse of the Soviet Union.Assuming non-Opec countries do reduce by 600,000 bpd, this will take the total reduction in crude gushing into the market to 1.8mn bpd.“This is all encouraging for a sense of stability for the markets,” Saudi Energy Minister Khaled al-Falih said.