Yemisi Izuora/Agency Report
The Organization of the Petroleum Exporting Countries OPEC have reached a preliminary agreement to curb oil production for the first time since the global financial crisis.
This agreement if implemented will settle tumbling oil prices in the international market.
A freeze which countries like Nigeria is anticipating for long would balance crude price to cushion her economic plight that went into recession in the last one month.
Wednesday’s move in Algeria is an effort to reduce a global glut of crude that has depressed oil prices for more than two years and weakened the economies of oil- producing nations.
The deal was reached after several hours of talks in the Algerian capital, though output levels must still be finalised at an OPEC meeting in Vienna in November.
The preliminary deal will limit output from the Organisation of the Petroleum Exporting Countries to between 32.5 million and 33 million barrels a day, said Mohammed Bin Saleh Al-Sada, Qatar’s energy minister and president of OPEC.
Current output is estimated at 33.2 million barrels a day.
Benchmark US crude jumped $US2.38, or 5.3 per cent, to close at $US47.05 a barrel in New York.
Brent crude, the international standard, was up $2.72, or 5.9 percent, to $48.69 a barrel in London.
Long-running disagreements between regional rivals Saudi Arabia and Iran had dimmed hopes for a deal at Wednesday’s talks.
Iran had been resistant to cutting production as it tries to restore its oil industry since emerging from international sanctions over its nuclear program earlier in 2016.
According to Wednesday’s deal, Iran will be allowed to increase production to 3.7 million barrels a day.
It is estimated to be pumping about 3.6 million but had been aiming for four million a day.
The deal was a victory for Algerian officials who shuttled among participants to try to reach common ground on how to support oil markets.
‘Our optimism was vindicated,’ Energy Minister Noureddine Bouarfaa said.
‘The decision was unanimous and without reservations.’
Oil traded about $US107 a barrel in June of 2014 but increased output from non- OPEC countries, particularly the US, created an oversupply in the market.
Instead of cutting production, OPEC opted to pump at high volumes in an attempt to maintain market share and drive some US shale oil and gas producers out of business.
Crude prices plunged and in January of this year fell below $US30 for the first time in more than a decade.
The lower prices have hurt many oil-producing nations hard, particularly OPEC members Venezuela and Nigeria, but also Russia and Brazil.
‘We reached a very positive deal,’ Nigerian Oil Minister Emmanuel Ibe Kachikwu said.
He said all countries would reduce output but the specific quotas would be set in November. Analysts say the deal could still fall apart.
‘You might say they have kicked the can down the road with an intent to conclude something by November,’ said Bhushan Bahree, an analyst with IHS Energy.
‘Whether they succeed or not remains to be seen.’
Larry Goldstein of the Energy Policy Research Foundation said ‘they have agreed to agree – it’s still talk’, with few details or numbers.
He said the OPEC announcement could halt further slippage in short-term prices, buying time for Saudi Arabia and other cartel members.
He expected oil inventories to start coming down sharply – with prices rising – next year.
‘The key to the consumer is – if you have a long view – prices are going to go up fairly dramatically by the second half of 2017,’ Goldstein said.
He said once inventories were worked off, there would not be enough of a cushion of additional, quick production to prevent that run-up.
Oil prices have more than halved from highs above $100 a barrel in mid-2014 as surging production from U.S. shale oil combined with other global oversupplies and OPEC output.
As oil traders looked to OPEC to cut output, key members such as Saudi Arabia and Iran became more protective of individual market share.
The deal in Algiers follows failed talks in Qatar in April for a production freeze.
Oil prices gyrated earlier in the day after U.S. government data showed a surprise drop in domestic crude stockpiles for a fourth week in a row.
The drawdown was offset by a 2 million barrel build in gasoline stockpiles, compared with expectations in a Reuters poll for a gain of 178,000 barrels.
Jeff Quigley, director of energy markets at Stratas Advisors in Houston, said it was “too preliminary” to get excited over the OPEC deal.
Saudi Energy Minister Khalid al-Falih said on Tuesday Iran, Nigeria and Libya would be allowed to produce “at maximum levels that make sense” as part of any output limits which could be set as early as the next OPEC meeting in November.