Oil prices soared 8 per cent to $50 a barrel on Wednesday as Opec agreed to its first supply cut since prices started to plummet two years ago.
The meeting is continuing as individual country allocations are hammered out, but sources said the main obstacles to the deal had been overcome. It will see the 13-member group reduce output by about 4.5 per cent, or 1.2m a barrels a day, with production targets for each member country.
The deal is a big coup for Opec and comes after Saudi Arabia, Iran and Iraq, the group’s three most powerful members, had been at loggerheads, with each country threatening to scupper an agreement.
But the need for a higher price for their oil-dependent economies appear to have united the three countries over the first big supply cut since 2008.
Saudi Arabia is expected to shoulder the bulk of any production cuts along with its Gulf allies. In return, Iran is expected to freeze production at about 3.8m barrels a day, close to its current rate of production, according to third-party assessments used by Opec.
Iraq, which has disputed its need to cut and looked like it could block a deal, also appears to have given ground.
Indonesia has been suspended from the organisation and so the precise output ceiling has yet to be determined, delegates said. It produced more than 700,000 b/d last month but is the sole net oil importer in the group.
A deal could help the oil market recover from its longest downturn in a generation, which has hit the share prices of oil companies and sent big producing countries spiralling downwards into recession.
Brent, the international oil marker, rose $3.66, or 7.9 per cent to $50 a barrel.
In September Opec reached a provisional accord in Algiers to bring its total production down to between 32.5m b/d and 33m b/d from a near record 33.8m b/d at the moment. But two months later, the group was still trying to reach an agreement on how the cuts would be apportioned.
Signs that Opec was moving closer to a deal emerged before the meeting started on Wednesday.
Khalid al-Falih, Saudi Arabia’s energy minister, said the cartel, which controls about a third of the world’s oil production, was moving “close” to a deal, as he signalled that he was working to bridge a gap with regional rival Iran.
Bijan Zanganeh, Iran’s oil minister, said all Opec members were ready to compromise and there was a “framework for a deal”. His tone was notably softer than in recent days.
Before the meeting Mr Falih said he expected Russia and other countries outside the cartel to cut about 600,000 b/d of production once Opec had agreed a deal. The kingdom believes the co-operation of big producers outside the cartel is necessary for any agreement to be effective.
Sources in Vienna said there could be a meeting between Opec and non-members countries in the next couple of weeks.
But he also criticised Russia’s public stance that freezing its production, which has climbed to a post Soviet-era high, was acceptable.
Asked if Russia was prepared to cut production, Vladimir Putin’s spokesman Dmitry Peskov referred to the president’s call with Iranian president Hassan Rouhani this week. “The conversation touched on various issues of co-operation in oil matters,” said Mr Peskov, according to Interfax.
A person briefed on Russia’s preparations for discussions with Opec said that the government had readied all the necessary mechanisms to implement either a freeze or a cut and discussed this with Russian oil companies.
Pavel Zhdanov, director for capital markets and mergers acquisition at Lukoil, Russia’s largest privately owned oil producer, told investors on a conference call on Wednesday: “In general the company supports the initiative of major oil producers to do certain steps to stabilise the oil market. Let’s wait and see what the steps look like.”
Additional reporting by Jack Farchy in Moscow
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