Opec agrees oil output cuts

Members propose new production ceiling at 32.5m bpd, down from current levels of 33.6m bpd

Opec members agreed to cut back on oil production for the first time since 2008, as the world's top oil producers gathered in Vienna in a closely watched meeting.

The new agreement is in line with an accord reached in Algiers in September. It proposes to set a new production ceiling at 32.5 million barrels per day, down from current levels of 33.6 million, “in order to bring the oil market rebalancing forward”, an Opec statement said.

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The changes will be effective from 1 January 2017 for six months, extendable for another six months to take into account prevailing market conditions and prospects.

The agreement, which also calls for a reduction of about 600,000 bpd by non-Opec countries, including Russia, pushed up oil prices by around 8% on Wednesday.

Iran, Libya and Nigeria have been exempt from cuts as their output has been crimped by unrest and sanctions. (See chart of all member commitments.)

“Opec was under pressure to deliver a deal following their public announcements in September,” IHS analyst Spencer Welch said.

“The burden of the cut appears likely to once again fall on Saudi Arabia, UAE and Kuwait.”

Welch  said the deal "will certainly provide some short-term market price boost".

“But disagreements persist among Opec members on how to measure production, so the deal will be hard to police,” he said.

“One thing is certain – US tight oil will like the price rise and production will start rising soon. But, this was going to happen regardless of any Opec deal today.”

Opec also stressed that “the market rebalancing is underway”, but warned that OECD and non-OECD inventories still stand well above the five-year average. 

It noted the drop off in investment levels in both 2015 and 2016, as well as the huge layoffs the industry has witnessed in recent years. 

Members emphasised the importance of “continued investments for an industry that needs regular and predictable investments to provide the necessary supply in the medium- and longer-terms”.

The 14-country producer group, which accounts for a third of global oil production, made a preliminary agreement in Algiers in September to cap output to prop up oil prices, which have halved since mid-2014.

The September deal was seen as a victory for Iran, as Tehran has long argued it wants to raise production to regain market share lost under Western sanctions, when Saudi Arabia increased output.

The group's next meeting will convene in Vienna on 25 May 2017.