A strong member of the cartel- Saudi Arabi relaxed its stance on arch-rival Iran amid mounting pressure from low oil prices.
Two sources in the OPEC said the group would reduce output to 32.5 million barrels per day from current production of 33.24 million bpd.
“OPEC made an exceptional decision today … After two and a half years, OPEC reached consensus to manage the market,” Iranian Oil Minister Bijan Zanganeh was quoted by Iran’s SHANA news agency as saying, without giving details.
OPEC’s informal meeting in Algeria was still continuing after five hours.
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.
Meanwhile, oil prices yesterday, rose by more than 5 per cent to trade above $48 per barrel as many traders said they were impressed OPEC had managed to reach a deal but others said they wanted to see the details.
“This is the first OPEC deal in eight years. The cartel proved that it still matters even in the age of shale! This is the end of the ‘production war’ and OPEC claims victory,” said Phil Flynn, senior energy analyst at Price Futures Group.
Jeff Quigley, director of energy markets at Houston-based Stratas Advisors, said the market had yet to discover who would produce what: “I want to hear from the mouth of the Iranian oil minister that he’s not going to go back to pre-sanction levels. For the Saudis, it just goes against the conventional wisdom of what they’ve been saying.”
Saudi Energy Minister Khalid al-Falih ,had 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.
Several attempts in the past to cut oil output has met stiff opposition from OPEC member countries, especially from Saudi Arabia and Iran.
Iran just recently returned to OPEC after several years of sanction on it by the United States
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