The Organization of Petroleum Exporting Countries (OPEC) reached a landmark deal on Wednesday on production cuts, sending oil prices up as much as 10 percent on international markets.
The producers’ cartel, which accounts for a third of global oil supply, agreed to cut output from January by around 1.2 million barrels per day (bpd), or over 3 percent, to 32.5 million bpd.
The output pact, the first such deal since 2008, came as Saudi Arabia accepted “a big hit” on its production and dropped a demand on arch-rival Iran to slash output, Reuters reports.
Russia, a non-OPEC member, will also join output reductions for the first time in 15 years to help prop up oil prices.
Following the deal, benchmark US crude prices soared 10 percent on Wednesday in their largest one-day move since February.
Nymex crude futures for January delivery settled up 9.6 percent at US$49.44 a barrel, after earlier crossing the US$50 mark. For the month of November, crude prices are up nearly 5 percent.
Brent crude futures for January delivery settled up 8.8 percent at US$50.47 a barrel.
Wednesday’s deal, which will put OPEC production at the low end of a preliminary agreement struck in Algiers in September, will reduce output from a current 33.64 million bpd.
Saudi Arabia, the oil cartel’s de facto leader, will take the lion’s share of cuts, reducing output by almost 500,000 bpd to 10.06 million bpd.
Meanwhile, non-OPEC Russia, which had long resisted cutting output and pushed its production to new record highs in recent months, agreed to cut output by 300,000 bpd.
Oil prices may continue to strengthen on the deal, but analysts say sharp gains will be limited as doubts linger with regard to the implementation of the cuts.
In the past, not all producers have complied with agreements on supply cuts.
Kuwait, Venezuela and Algeria will be monitoring compliance in the latest deal.
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