OPEC agreement sends crude oil, gas prices higher, AAA says

Oil prices have soared after the Organisation of the Petroleum Exporting Countries (Opec) defied the naysayers to agree its first production cut since 2008. 5 million barrels a day, is to take effect in January, said OPEC President Mohammed Bin Saleh Al-Sada.

An Iraqi delegate said on Wednesday that some form of agreement would be reached and Iran’s oil minister also said he was optimistic.

Indonesia, the producer group’s only East Asian member, said it would suspend its membership after rejoining only this year as it was not willing to comply with the output cuts sought.

OPEC’s decision comes at a time where more countries, including the US, have been producing more of their own oil.

The price of Brent crude rose 1.3% to $52.51 a barrel, after soaring 8.8% on Wednesday. There is still more supply than demand – the reason oil prices collapsed beginning in mid-2014.

Indonesia had made a decision to suspend its membership of OPEC because it could not agree to the production cut, he added. “An additional cut of 0.6 million bpd from non-OPEC countries could significantly add to what has been announced by OPEC”.

On Tuesday, Iran wrote to OPEC saying it wanted Saudi Arabia to cut production by as much as 1 million bpd, more than Riyadh was willing to offer, OPEC sources who saw the letter told Reuters.

However, with the facet that no immediate reduction to Iran’s output was on the agenda as well as concerns that an OPEC cap would simply lead to increased production elsewhere, it remains to be seen if markets have not overreacted to the statement.

OIL: Oil prices were mixed after they surged on Wednesday thanks to the output cut agreement among OPEC nations, which collectively produce more than one-third of the world’s oil. Moreover, any incremental production from Libya and Nigeria, countries that have been exempt from making any adjustments, will delay the rebalancing of markets.

Iran will be permitted to boost production up to 3.9 million bpd, a almost 300,000 bpd increase from its October level. There will now be a non-OPEC meeting on 9 December, which Algeria, Venezuela and Kuwait will also attend.

“With the cooperation and understanding of all member countries, we’ve been able to reach an agreement”, Sada, also Qatar’s energy minister, said.