The Organisation of the Petroleum Exporting Countries (OPEC) has decided to remove 900,000 barrels a day from output limits for 10 members to 24.5 million barrels daily effective 1 November, ministers said on Wednesday.
"We don't want the market to collapse on our heads," said Rilwanu Lukman, Nigerian Presidential Adviser on Energy. "Stocks are rising and prices were falling, and Iraq is on its way back - so wouldn't you be cautious?"
The deal could inflate energy bills for oil importing countries like the United States, Japan and Germany during the northern hemisphere winter.
Benchmark US light crude futures by 16:00 GMT jumped $1.19 to $28.30 a barrel.
"If oil prices continue to move higher, then interest rates in the G7 may need to be higher than they would otherwise be, which is not good for recovery prospects," said Paul Robson, international economist at Bank One in London.
"It shows that OPEC cares more about revenue and price than anything else"
consultant, PIRA Energy
"I think it’s very bullish for oil prices," said Gary Ross of New York consultancy PIRA Energy.
"The hedge funds are short and they will be running for cover. It shows that OPEC cares more about revenue and price than anything else."
Conjecture that OPEC might insist on big non-OPEC rivals like Russia contributing to any supply curbs came to nothing.
Delegates said OPEC kingpin Saudi Arabia preferred for now to stick to its strategy of sacrificing a modest amount of market share to defend the group's central $25 price target.
OPEC ministers had watched world oil prices ease this month to four-month lows, despite a sluggish recovery in post-war Iraqi output.
Iran Oil Minister Bijan Zanganeh
(L) wants to avoid 'oversupply'
Walking into Wednesday's meeting, several ministers said they expected no change in output. But the recent price fall and projections that increasing non-OPEC production would swamp demand saw a late change of minds.
Ministers also were worried about a build-up of crude oil stocks during the fourth quarter and Iraq's continued recovery towards pre-war supplies.
"We believe that we have about 2.5 million barrels a day of oversupply in the first quarter of 2004 and it's better to start before to prevent a bad situation," said Iranian Oil Minister Bijan Zanganeh.
He said more cuts could come when ministers meet again on 4 December in Austria to set policy for the first quarter 2004.
Iraq, attending its first OPEC meeting since US occupation, reassured fellow members that Washington's influence would not prevent it staying in the cartel.
"Iraq will remain in OPEC as a full member," Iraq's new Oil Minister Ibrahim Bahr al-Uloum told a news conference.
He said Baghdad's reintegration into OPEC's quota system would have to wait until Iraqi production, still to reach pre-war volumes, had been restored.
OPEC postponed a discussion on the election of a new secretary-general until its December meeting.