OPEC Agrees to Cut Production in Drive to End Record Glut
OPEC clinched a deal to curtail oil supply, confounding skeptics as the need to clear a record global crude glut -- and prove the group’s credibility -- brought about its first cuts in eight years.
OPEC will reduce production by 1.2 million barrels a day to 32.5 million a day, two delegates said Wednesday during a ministerial meeting in Vienna, asking not to be identified as the decision isn’t yet public. Benchmark Brent crude rose 8 percent to $50.07 a barrel in London at 1:37 p.m. local time.
After weeks of often tense negotiations, the Organization of Petroleum Exporting Countries’ three biggest producers -- Saudi Arabia, Iraq and Iran -- resolved differences over sharing the burden of cuts. Notably, it appears the Saudis accepted that Iran, as a special case, can raise production to about 3.9 million barrels a day. The agreement is also likely to include an additional reduction of about 600,000 barrels a day by non-OPEC countries.
“This should be a wake-up call for skeptics who have argued the death of OPEC,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd. “The group wants to push inventories down.”
The deal promises to revive the tattered finances of countries from Venezuela to Libya and restore flagging confidence in the producer bloc that controls 40 percent of the world’s oil. But the consequences will reverberate far beyond OPEC, giving a boost to U.S. shale drillers crippled by a two-year price rout and oil giants such as Royal Dutch Shell Plc, which have cut spending to the bone to weather the prolonged downturn.
Morgan Stanley said Monday that an OPEC agreement could boost crude prices by $5 or more. While the deal is unlikely to be enough to wipe out the crude glut entirely -- OPEC’s own estimates show it needs to pump just 31.9 million barrels a day from January to June to balance supply and demand -- it clears the way for participation by non-OPEC suppliers, chiefly Russia.
Russia, the biggest producer outside the bloc, has said if OPEC agrees on individual country quotas it’s ready to participate, including possibly reducing its output, a person familiar with Russian thinking said earlier. That would mark a reversal of its previous position.
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