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OPEC Reaches Deal to Limit Production, Sending Prices Soaring

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Khalid al-Falih, center, the Saudi energy minister, at the OPEC meeting in Vienna on Wednesday.

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Christian Bruna/European Pressphoto Agency

VIENNA — After years of trying fruitlessly to prop up energy markets, OPEC on Wednesday finally reached a consensus on production cuts, sending oil prices soaring. The problem is, the euphoria may not last.

With prices still at less than half the levels of two years ago, all 14 members of the Organization of the Petroleum Exporting Countries agreed this fall to lower collective production. But they could not figure out how to spread out the cuts among the countries.

The path to consensus has been complicated by Saudi Arabia and Iran, whose longstanding mutual enmity encompasses religious, political and economic competition. When it comes to oil, Saudi Arabia, OPEC’s top producer, has fought to maintain its market share while Iran has worked to protect its nascent comeback as a power broker in the cartel, a role it lost in recent years under nuclear sanctions.

They overcome their differences on Wednesday, with OPEC deciding to cut production next year by about 4.5 percent, or 1.2 million barrels a day, according to Mohammed bin Saleh al-Sada, the Qatari oil minister, who is running the meeting. It will be the first cut in eight years.

With the prospect of less pumping, oil prices, which began rising earlier in the day in anticipation of the deal, were up more than 7 percent, to nearly $50 a barrel. Rising prices could provide a lift to the troubled economies of oil-dependent nations like Nigeria and Venezuela, as well as bolster the fortunes of smaller American energy producers that have been shaken be the weakness.

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But a recent production frenzy creates a wild card for the deal.

While both Saudi Arabia and Iran have vocally supported higher prices, their national oil companies have been making deals in Asia and filling tankers as quickly as they can leave port. Saudi production has increased to well over 10 million barrels a day, while reductions in domestic consumption have left more available for export. Iran, relieved of nuclear sanctions, has gone on its own selling spree in India and started production in new oil and gas fields.

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The oil industry, with its history of booms and busts, has been in its deepest downturn since the 1990s, if not earlier.


Other OPEC countries have followed, increasing production in recent months. The race to pump more is taking several of the cartel’s largest members to the brink of their production capacity.

The intense competition makes OPEC’s new plan less meaningful — part of the broader piece of the industry dynamics that means the price increase could prove temporary.

The size of the cut is fairly trivial in a 96-million-barrel-a-day marketplace that remains oversupplied. Should prices rise in the next few weeks, American shale producers are likely to drill and complete more new wells, which would add supply to the global market and depress prices in 2017. And, if history is any guide, even a modest agreement can be breached by cheating.

“There is no difference between the battle between Saudi Arabia and Iran and the fight between Google and Apple for the device market or the battle between Verizon and AT&T for customers,” said Philip K. Verleger, an energy economist who served in the Ford and Carter administrations.

Correction: November 30, 2016

An earlier version of a photo caption with this article misspelled the name of the oil minister of Saudi Arabia. He is Khalid al-Falih, not Khaled al-Falih.

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NYtimes

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