After months of wheeling and dealing, the member nations of the Organization of Petroleum Exporting Countries (OPEC) have finally agreed an average drop in production level of 1.2 million barrels per day, effective January. The agreement exempted Nigeria and Libya, but gave Iraq its first quotas since the 1990s, Bloomberg reports.
Iran seems to be the greatest winner, as OPEC agreed for the country to raise output to about 3.8 million barrels a day as the country sought special treatment as it recovers from sanctions. However, Iraq OPEC’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels despite its previous push for special consideration based on the urgency of its offensive against Islamic State.
Saudi Arabia, which raised oil production to a record this year, will reduce output by 486,000 barrels a day to 10.058 million a day. The United Arab Emirates and Kuwait will reduce output by 139,000 barrels a day and 131,000 a day while Russia, although not a member of OPEC, has agreed to cut production by as much as 300,000 barrels a day. It, however agreed “conditional on its technical abilities.”
Already, the effect on the market is profound with West Texas Intermediate crude futures rising by 0.3 percent to $49.61 a barrel at 11:44 a.m. Singapore time after gaining 9.3 percent Wednesday, the biggest one-day gain since Feb. 12. In addition, benchmark oil prices gained as much as 10 percent in New York and the share prices of energy companies around the globe jumped alongside the currencies of large exporters.
It is believed that this agreement will further drive prices of crude oil higher, but full efficacy will depend on actual implementation by the member nations.