Oil prices spiked sharply higher Friday after OPEC countries agreed to a proposal that would see global oil production reduced by 1.2 million barrels a day.
Following a morning meeting of the Organization of the Petroleum Exporting Countries, Iraq Oil Minister Thamir Ghadhban told reporters the proposed cut would be made up of 800,000 barrels per day from OPEC countries and 400,000 barrels per day from Russia and other non-OPEC nations.
His Iranian counterpart, Bijan Zanganeh, confirmed the proposed cuts ahead of a closed-door session to finalize the deal with the non-OPEC countries. He said the cuts were to begin Jan. 1, 2019, for a period of six months.
Oil producers have been under pressure to reduce production following a sharp fall in oil prices over the past couple of months. The price of oil has fallen about 25 per cent recently because major producers — including the U.S. — are pumping oil at high rates.
The reduction certainly met with the response hoped for by ministers, immediately after the announcement:
- Brent crude, the international standard, was up $ 3.11 US a barrel, or 5.2 per cent, at $ 63.17.
- Benchmark New York crude was $ 2.23, or 4.3 per cent, higher at $ 53.72 a barrel. And
- Western Canadian Select soared by 12 per cent, up $ 4.50 a barrel to $ 37.50.
- And West Texas Intermediate jumped by $ 2.25 to $ 53.75 a barrel.
A 'real positive'
The proposed cut was in line with the one million to 1.3 million barrels per day expected by analysts.
Neil Wilson, chief analyst for Markets.com, said the cut was at the upper-end of forecasts and is a "real positive."
"The fact that the OPEC-Russia alliance is still holding matters as much as the details of the deal itself," he said.
Russian Energy Minister Alexander Novak did not mention the specific proposal as he addressed colleagues in public before the beginning of the closed session, but said he was "confident" they would be able to "send a strong message to the market, to act with resolve."
"I believe that our unity of thought and our resolve will help us achieve success in the goal of achieving long-term sustainability and stability of the market," he said.
Iran's Minister of Petroleum Bijan Namdar Zangeneh arrives prior to the start of an OPEC meeting at its headquarters in Vienna, Austria, Thursday. (Ronald Zak/Associated Press )
The cut is unlikely to be greeted warmly by U.S. President Donald Trump, who has been pressuring the cartel publicly to maintain production. On Wednesday, he tweeted: "Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!"
Heading into the first round of meetings, Saudi Arabia, the heavyweight within OPEC, said it was in favour of a cut of about a million barrels a day.
One stumbling block to an agreement had been Iran, Saudi's regional rival and fellow OPEC member, which had been arguing for an exemption to any cuts because its crude exports are already being pinched already by U.S. sanctions.
Zanganeh told reporters Iran had been given the exemption.
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