OPEC reaches deal to cut production
Organization: Department of International Cooperation Publish Date: 2016-12-07 16:25
Sources: BBC News; The Economist
The Organization of the Petroleum Exporting Countries (OPEC) reached consensus on production cuts, its first joint output cut since 2008, after tough talks in Vienna on Nov. 30, sending oil prices soaring.
The deal, designed to reverse a slump in global oil prices due to a supply glut on the market, will see the group reduce production by 1.2 million to 32.5 million barrels per day starting from January 2017.
Oil prices have risen further following news of the agreement. The price of Brent crude rose 4.5% to $54.19 a barrel on Dec 1, its highest level this year, after soaring 8.8% on signing day, while U.S. crude traded 4.3% higher at $51.54 a barrel after jumping 9% on signing day.
The agreement rests heavily on Saudi Arabia - the world's biggest oil producer - which has agreed to slash about 4.5% of its output, or 500,000 barrels per day, while non-OPEC countries are expected to reduce production by a further 600,000 barrels a day.
The rally's continuation, however, depends on non-OPEC members such as Russia committing to cut output. So far Russia has pledged to cut 300,000 barrels from its output of more than 10 million barrels a day, but it is unclear who else will also scale back. OPEC will hold talks with non-OPEC producers on Dec. 9, and hold another meeting in May 2017 to review the deal's progress.
Analysts noted oil-producing countries that were not party to the deal, such as the U.S., were likely to increase production as prices rose, offsetting efforts to curb oversupply.