Oil prices surged sharply on Friday as major oil producers, including the OPEC cartel, agreed to cut world oil production by 1.2 million barrels per day to curb surplus supply.
After two days of meetings, the Organization of Petroleum Exporting Countries, which includes people such as Saudi Arabia and Iraq, said it would cut 800,000 barrels per day in six months from January, although some countries like Iran, which faces widespread sanctions from the United States, have been released.
The balance will come from Russia and other non-OPEC countries. The United States, one of the largest manufacturers in the world, is not part of the deal.
"This is an important step forward," said Minister of Energy of the United Arab Emirates, Suhail Mohammed al-Marway, who chairs the regular meetings in Vienna as chairman of the OPEC Conference.
Oil producers are under pressure to cut production after a sharp fall in oil prices over the past few months. Oil prices have recently fallen by about 25%, as large producers – including the United States – pumped oil at high rates.
The reduction has certainly met with the response expected by ministers. Immediately after the announcement:
- Brent, the international standard, rose by $ 3.11 a barrel or 5.2% for $ 63.17.
- The benchmark of New York is $ 2.23, or 4.3 percent, higher than $ 53.72 a barrel. And
- Western Canada Select rose 12 percent to $ 4.50 a barrel to $ 37.50.
- The average price of Western Texas jumped $ 2.25 to $ 53.75 a barrel.
Anne-Louise Hitle, vice president of oil industry expert Wood Mackenzie, said production cuts will tighten the oil market by the third quarter of next year and help raise Brent prices back above $ 70 a barrel.
"Ultimately, personal interest prevails"
"For most nations, own interest ultimately prevails," she said. "Saudi Arabia has a long-term goal of managing the oil market to avoid a sharp fall and surge that hurt demand and industry's ability to develop supply." Saudi Arabia also needs higher oil revenues to finance local Saudi Arab spending. "
Russian Energy Minister Alexander Novak called negotiations with OPEC countries "quite complicated," but said the decision "should help the market reach a balanced state."
"I think this is a strong signal for anyone who doubts that our cooperation continues and we can respond to any challenge the market is throwing us," he said in Russian with an interpreter.
The reliance on OPEC in non-Russia countries underlines the cartel's weakening influence on the oil markets that have dominated for decades.
Increased oil production in the US
The OPEC-Russia Alliance became necessary in 2016 to compete with the enormous increase in US oil production in recent years. According to some estimates, the US has become the world's largest producer of crude oil this year.
The reduction is unlikely to be warmly welcomed by US President Donald Trump who publicly exerts pressure on the cartel to maintain production. On Wednesday, he said, "Let's hope OPEC will hold the oil flows as unlimited as the world does not want to see or need higher oil prices!"
One of the obstacles to the agreement was Iran, the regional rival of Saudi Arabia and OPEC member who demanded the release of any cutbacks because raw exports are already slipping from US sanctions.
Al-Maruei said that eventually Iran had an exception, as were Venezuela and Libya.
This means that the percentage that we will contribute among us will be a little higher, "he said.
"Within OPEC, we are committed to distributing 800 (thousands of Barrels) among us and delivering it."