Finally, some good news for oil producing countries like Nigeria who has taken the worst hit in the global fall of oil prices as OPEC has agreed to modest oil output cuts.
This is the first of such deal since 2008, with the group’s leader Saudi Arabia softening its stance on arch-rival Iran amid slumping oil prices.Oil prices jumped more than 5 percent to trade above US$48 per barrel after the deal.
The Organization of the Petroleum Exporting Countries will reduce output to a range of 32.5-33.0 million barrels per day, Reuters quoted Iranian Oil Minister Bijan Zanganeh and other ministers as saying in the group’s meeting in Algiers on Wednesday.
OPEC estimates its current output at 33.24 million bpd.
The move will effectively re-establish OPEC production ceilings abandoned a year ago.
However, how much each country will produce is to be decided at the next formal OPEC meeting in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia, the news agency said.
“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.
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.
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 producers 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 US$98 billion last year, a stagnating economy and is being forced to cut the salaries of government employees according to ejinsight.
Saudi Arabia is by far the largest OPEC producer with output of more than 10.7 million bpd, on par with Russia and the United States.
Together, the three largest global producers extract a third of the world’s oil.
Iran’s production has been stagnant at 3.6 million bpd in the past three months, close to pre-sanctions levels.
Saudi oil revenue has halved over the past two years, forcing Riyadh to liquidate billions of dollars of overseas assets every month to pay bills and cut domestic fuel and utility subsidies last year.