The global oil price has jumped to more than $50 a barrel after the Organization of the Petroleum Exporting Countries (OPEC) agreed to bring its oil output down by 1.2 million barrels per day (bpd) from January, the cartel’s president Mohammed bin Saleh al-Sada said.
The agreement among OPEC countries was reached at a meeting in Vienna on Wednesday and it marked the first time since 2008 that the cartel cut its production, limiting it to 32.5m bpd.
“With the cooperation and understanding of all member countries, we’ve been able to reach an agreement,” Sada, also Qatar’s energy minister, said.
Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 14 nations, founded in 1960 in Baghdad and headquartered since 1965 in Vienna.
As of 2016, OPEC’s members are Algeria, Angola, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), United Arab Emirates, and Venezuela.
Two-thirds of OPEC’s oil production and reserves are in its six Middle Eastern countries that surround the oil-rich Arabian Gulf.
“We came to the understanding that the market needs to be rebalanced. It would need courageous decisions from OPEC members, and with support of some key non-OPEC countries.”
The organisation’s biggest producer Saudi Arabia has agreed to reduce its output by half a million barrels per day.
Oil prices dropped to about $26 a barrel earlier this year after it had reached $115 some 18 months earlier.
Major oil producers Russia and the United States are not members.
Sada added non-member Russia has committed to reducing its output by 300,000 barrels per day, half of a hoped-for 600,000 barrels per day from outside the cartel.
The cuts include Iraq reducing output by 200,000 bpd to 4.351m bpd. Kuwait, Venezuela, and Algeria have agreed to monitor compliance with the OPEC agreement.
Following the announcement, brent crude futures rose $3.79 to $50.17 a barrel, an 8.2 percent gain.
“This is a major step forward and we think this is a historic agreement, which will definitely help rebalance the market and reduce the stock overhang,” Sada said.
He also said the deal will help lift global inflation accelerate to a “more healthy rate”, including in the US.
It finalises a preliminary deal struck in September in Algeria when OPEC agreed to cut production, but left the details to clear up later. Negotiations got bogged down in a game of poker between OPEC’s three biggest producers, Saudi Arabia, Iraq and Iran on who would do the heavy lifting.
Iraq had said it did not want to pump less crude because it was short of money to fight the armed ISIL group. It also disputed how much it actually produced.
Iran has only been able to freely export oil since last year’s nuclear deal came into force in January, and wants to return to pre-sanctions output levels.