Ebun Francis with agency reports
The price of Brent crude rose sharply to $59.94 and US crude jumped to $49.53 as Opec agreed to cut supply for the first time in eight years in an effort to boost the price of oil. The increase in price represents a jump of 10 and 9 percent jump respectively.
Opec’s president, Mohammed Bin Saleh AL-Sada said a cut of 1.2 million barrels a day would start from January and this follows more than two years of depressed oil prices, which have more than halved since 2014, due to a supply glut.
In addition to the production cut by Opec members, non-Opec countries will be expected to reduce production by 600,000 barrels a day, according to Mr Al-Sada. Even though, he did not mention the Country’s willing to participate, he did however, say that Russia was prepared to cut 300,000 barrels from its output of more than 10 million barrels a day.
“This agreement comes from a sense of responsibility from Opec member countries and non-Opec member countries for the general well-being and health of the world economy,” he said.
The deal comes after oil ministers agreed to a cut in principle in September, which would have limited output by about 700,000 barrels a day while allowing Iran to increase production.
But disagreements between Saudi Arabia – the world’s biggest oil producer – and Iran led to doubts an agreement would be secured.
The Saudis were hesitant to shoulder the lion’s share of a cut, while Iran had resisted reducing its own production, arguing it had yet to recover its output levels after years of sanctions.
At Wednesday’s meeting, however, Saudi Arabia agreed to cut output by about 500,000 barrels per day – a total reduction of about 4.5%.
That will take its output to 10.06 million barrels per day.
Iran, in contrast, was allowed to increase production slightly from its October level, a boost for Tehran.
According to the Reuters news agency, this was achieved by suspending Indonesia’s membership of Opec since the country, a net importer, could not cut output.
Analysts stressed the deal was contingent on agreement from non-Opec members.
“Without their agreement it is technically unworkable, so there is still some uncertainty hanging over it,” John Chairman of Alfa Energy Group in London told the BBC.
“So I think it is impressive they’ve got this far and got countries like Iran and Iraq to agree, but Russia could well change its mind about limiting production.”
Spencer Welch, director at IHS Energy, said the deal would provide a short term boost to oil prices, but added: “Disagreements persist among Opec members on how to measure production, so the deal will be hard to police.”