The Organisation of Petroleum Exporting Countries (OPEC) agreed to cut its oil output for the first time since 2008, with Saudi Arabia softening its stance on arch-rival Iran amid mounting pressure from low oil prices, reported AFP.
Nigeria, Iran, Libya may be allowed to produce at maximum levels
According to reports, two sources in OPEC said the group would reduce output to 32.5 million barrels per day (mbpd) from current production of 33.24mbpd.
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.
Responding to the news, oil prices jumped more than five per cent to trade above $48 per barrel after the outcome of OPEC’s informal meeting in Algeria took traders by surprise.
Still, many said they wanted to see the details of the deal. “We don’t know yet who is going to produce what. I want to hear from the mouth of the Iranian oil minister that he is 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,” said Jeff Quigley, director of energy markets at Houston-based Stratas Advisors.
Saudi Energy Minister, Khalid al-Falih, 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 had said it would reduce output to ease a global glut only if every other OPEC and non-OPEC producer followed suit.
Iran also argued that it should be exempted 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 four per cent this year, according to the International Monetary Fund (IMF).
Saudi Arabia, 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.