OPEC reaches deal to cut oil production
VIENNA - OPEC representatives reached a deal to cut oil production after months of wrangling Wednesday, in an effort to lift sagging prices and reassert the cartel’s influence over a market increasingly dominated by the U.S., Russia and others.
The Organization of the Petroleum Exporting Countries said it agreed to cut production by 1.2 million barrels a day from the current 33.6 million barrels, representing about 1% of global production. Other oil producers from outside the cartel are expected to cut an additional 600,000 barrels a day, OPEC said.
Oil prices surged Wednesday afternoon, with U.S. crude up 9.3% to $49.44 a barrel. OPEC members have said they are targeting prices as high as $55 to $60 a barrel, a level that would boost petroleum-dependent economies that have been badly damaged by two years of prices that were often below $50 a barrel.
“It’s a good day for the oil market, it’s a good day for the oil industry,” Saudi Arabian Energy Minister Khalid al-Falih said following the agreement, adding that the “deal is not only what we wanted, but what the market wanted.”
Saudi Arabia is OPEC’s largest producer and pushed hard for a broad agreement between both OPEC and non-OPEC members to cut production.
Wednesday’s OPEC deal strikes a fresh path for the 56-year-old oil cartel whose oil-market supremacy has been challenged in recent years by the U.S. Two years ago, faced with a glut caused by growing American production, OPEC decided to let prices fall and produce more oil in a fierce competition for market share.
The strategy was meant to force prices down for a time and hurt producers like the U.S., where the costs of extracting a barrel of oil are more than in places like Saudi Arabia or Iran. But prices fell to levels lower than many thought—less than $28 a barrel in January—and stayed there for longer than expected forcing OPEC into a volte-face.
The deal represents a victory for Saudi Arabia, which took a hard line and pushed for a deal the oil market would trust with targets for each country to hit. It is the first OPEC production cut since 2008, when the financial crisis depressed oil demand.
Though Saudi Arabia has agreed to take on the highest burden of cuts - a 486,000 barrel a day hit to its output—it also scored a win in persuading Iraq to agree to reduce its output, as well as getting non-OPEC producer Russia on board for a cut of 300,000 barrels a day, according to OPEC.