OPEC agrees first oil production cut in 8 yrs

OPEC announced Wednesday that its nations have agreed to cut its oil production for the first time in eight years in an effort to boost crude prices.

The Organisation of Petroleum Exporting Countries (OPEC) has agreed to cut 1.2 million oil production starting from January, 2017. That would involve cutting output from a current level of around 33.6 million barrels a day to somewhere between 32.5 million and 33 million.

“But one thing few, if any, analysts will disagree with is that if OPEC do not come up with a credible agreement to cut production on Wednesday oil prices will end the year below $40 bbl and be chasing down $30 bbl early next year”, Hufton said.

He also said that the Russian Federation, a non-OPEC member, agreed to reduce its oil production by 300,000 barrels a day.

Iran has suggested it freeze production at 3.975 million barrels a day, or about 200,000 barrels a day above current output, two OPEC delegates said on Monday.

U.S. West Texas Intermediate crude futures rose $3.36 to $48.59 a barrel, a 7.4 percent gain by 10:19 a.m. (!%19 GMT). But much to the delight of this nation’s vehicle drivers, oil prices continue to remains down by over half from the summer of 2014.

Bob Minter, investment strategist at Aberdeen Asset Management, said the cut was bigger than most people had expected and could push oil prices to between $56 and $60 a barrel.

The meeting, which was held in Vienna, caps months of fraught negotiations that pitted the cartel’s de-facto leader Saudi Arabia against its regional rival Iran.

OPEC accounts for a third of global oil production, now extracting 33.64 million bpd. And, the decision this month to install the production adjustments was made without regard to the multiple possibilities that such a move could create for non-OPEC producers, including shale oil producers in the U.S. According to Al-Sada, the main goal was simply to get the market rebalanced.

“OPEC needs to wake up instead of playing a game of who will cry first”, said former Qatari energy minister and OPEC president Abdullah al-Attiyah.

The agreement reached Wednesday allows Iran to ramp up production by 90,000 barrels a day to just below 3.8 million barrels a day.

Crude prices remain at half their level of mid-2014 as global supply continues to swamp demand.

But, Iran was to be excluded to allow the country settle down and recover, after serving years of US -imposed sanctions, including restrictions on its oil production and exports.

“I’m optimistic”, said Iranian Oil Minister Bijan Zanganeh, adding there had been no request for Iran to cut output. Any final agreement “has to involve OPEC and non-OPEC”, he said. Iran, which is in opposition to Saudi Arabia in conflicts in Syria and Yemen, wants to increase output to regain market share it lost when Western sanctions targeted its oil industry. Russia, a major non-OPEC oil producer also must join in, and with the world economy feeble and oversupplied with oil, a bounce may be only temporary.