By Nayla Razzouk, Grant Smith and Angelina Rascouet
OPEC agreed to cut production for the first time in eight years Wednesday, sending oil prices more than 6 percent higher, as Saudi Arabia and Iran wrong-footed traders who expected a continuation of the pump-at-will policy the group adopted in 2014, according to a delegate briefed on the matter.
In two days of round-the-clock talks in Algiers, the group that supplies about 40 percent of the world’s oil said that it will drop production to 32.5 million barrels a day, nearly 750,000 barrels a day lower from what it pumped in August, the delegate said, asking not to be named because the decision isn’t yet public.
The deal will reverberate beyond the Organization of Petroleum Exporting Countries. It will brighten the prospects for the energy industry, from giants like Exxon Mobil Corp. to small U.S. shale firms, and boost the economies of oil-rich countries such as Russia and Saudi Arabia. For consumers, however, it will mean higher prices at the pump.
The Saudi-Iran agreement also signals a new phase in relations between the two nations, which have clashed on oil policy since 2014 and are backing opposite sides in civil wars in Syria and Yemen. The deal became possible after Riyadh and Tehran, with the mediation of Russia, Algeria and Qatar, agreed at the last minute on their respective production limits.
Brent crude surged 6.5 percent to $48.96 a barrel in London.
High Stakes
The stakes for OPEC are high. Ian Taylor, the head of Vitol Group BV, the world’s largest oil-trading house, said that the crude market could remain oversupplied until 2018 unless producing countries stop flooding the market.
“I cannot see a good reason for a major increase in the price of oil” since the market remains “way oversupplied,” Taylor told a Bloomberg conference in London.
As OPEC agreed to limit its output, Russia smashed a post-Soviet oil-supply record, pumping 11.1 million barrels a day in September, up 400,000 from August, according to preliminary estimates. Russia participated in the Algiers talks, but it’s not party to the OPEC deal.
–With assistance from Javier Blas Dina Khrennikova and Wael Mahdi
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