Abu Dhabi: Opec’s show of unity on Wednesday to cut production signals they still have some control over the market and the ability determine the course of oil prices.
Oil prices jumped by about 8 per cent on Wednesday evening after news emerged that Opec has agreed to a production ceiling of 32.5 million barrels per day from the current figure of 33.6 million.
In addition, oil producers outside Opec, including Russia, would contribute cuts of about 600,000 barrels a day, they said. Russia had previously said they would go along with an OPEC-led production cap if there is an OPEC agreement that assigns individual cuts to members. Specific details on the Opec cut have yet to be announced.
This is the first time since the financial crisis in 2008 that the fourteen-member group came to a consensus to cut output. In April this year, Opec failed to freeze production as Saudi Arabia insisted Iran join the deal.
And on September 28, member countries came to an agreement to limit production to a range of 32.5 to 33 million barrels per day but left the decision on production limits to a latter Opec meeting.
Opec oil ministers came to the meeting on Wednesday with a positive mind with Saudi Arabia oil energy minister Khalid Al Falih saying they are set for a deal.
Even the Energy Ministers from Iran, UAE, Algeria and Iraq exuded confidence and said they are ready for an agreement to rebalance oil markets.
Brent crude for January was at $49.83 per barrel at about 7pm UAE time having earlier broken above $50 per barrel earlier.
West Texas Intermediate followed a similar trajectory to head within a whisker of $50 per barrel before losing momentum to slip back below $49.50 per barrel.
“At this stage, it will ensure that we have a higher floor under the market,” said Ole Hansen, head of commodity strategy at Saxo Bank
“Now comes the delicate stage as these cuts have to be carried out and adhered to.”
“Depending on the size of the non-Opec contribution to a cut, I still believe that we may struggle to move above the 2016 high at $54 at this stage,” he said.
“US producers stand ready to pounce and that is likely to keep the upside limited until global inventories begin to contract in earnest.”
Details on the implementation of the deal were unclear though a Reuters report said that under the terms being discussed by ministers in Vienna, the group would cut production by 1.4 million barrels a day, equivalent to about 1.5 per cent of global production, according to a delegate.