Oil prices surge after OPEC agrees to cut production

Sources further said that Indonesia has been suspended from OPEC and Saudi Arabia is likely to cut output to 10.06 m bpd.

Analysts at Goldman Sachs, Barclays, and ANZ said oil prices would quickly fall to the low $40s a barrel if OPEC fails to strike a deal to cut output.

“OPEC has proved to the skeptics that it is not dead”.

“It’s not a freeze, it’s another arrangement”, Zanganeh said without elaborating after a breakfast with OPEC ministers ahead of the producer group’s formal meeting.

“This should be a wake-up call for sceptics who have argued the death of Opec”, said Amrita Sen, chief oil analyst at Energy Aspects. Marathon Oil was one of the industries best performers, with MRO stock climbing $3.14 or 21.0% to $18.09 per share. “I think it will be a boost to global economic growth”, he told reporters after the decision.

There was a weekly increase in output of 0.1% to 8.699mn bpd, although output is still just over 0.5mn bpd lower than in the same week of 2015.

Iran and Iraq together produce over 8 million bpd, only slightly behind long-time leader Saudi with 10.5 million bpd.

The organization began talks in September to reach a tentative deal at its November semiannual meeting in Vienna.

The Saudis have always been hesitant to shoulder the lion’s share of a cut, while Iran had resisted reducing its own production, arguing that it has yet to recover its output levels hit by years of sanctions.

“If you get this deal done, it would be huge”.

Still, even a symbolic sign that OPEC is back in the business of regulating the market would be significant, and could prompt major crude exporters outside the cartel to follow suit.

He said oil could rise to $55 per barrel.

Still, for all the hooplah, the OPEC deal might not be a game-changer for the Saudis, according to Jason Tuvey, Capital Economics’ Middle East economist. On Friday, OPEC canceled a meeting with non-OPEC producers.

Russia, which had long resisted cutting output, pushed its production to new record highs in recent months. This will bring the cartel’s overall daily output down to 32.5 million barrels a day.

Libya and Nigeria have also been granted an exemption from the cut. Saudi Arabia for the first time on Sunday suggested OPEC doesn’t necessarily need to curb output and pulled out of a scheduled meeting with non-member producers, including Russian Federation. “This agreement is out of the sense of responsibility for OPEC member countries, for non-OPEC countries, for the general well-being and the health of the world economy”.

Created to boost the oil market’s recovery, the production drop will “accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward”, OPEC said in a statement.

OPEC will hold talks with non-OPEC producers on December 9.