Oil prices soared 8 per cent to $50 a barrel on Wednesday as Opec agreed its first supply cut since prices started to plummet two years ago.
The meeting was continuing as country allocations are hammered out, but sources said all of the major obstacles to the deal had been overcome.
It will see the 13-member group reduce output by around 4.5 per cent, or 1.2 million barrels a day, with production targets for each country.
The deal is a major coup for Opec, and comes after Saudi Arabia, Iran and Iraq, the group’s three most powerful members, had been at loggerheads, with each country threatening to scupper an agreement.
However, need for a higher price for their oil-dependent economies appears to have united the three countries over the first major supply cut since 2008.
Brent, the international oil marker, rose $3.66, or 7.9 per cent, to $50 a barrel.
The deal saw shares in Tullow Oil soar to levels not seen since July, with the supply decision expected to help the company as it looks to refinance bank facilities next year.
Freeze production
Saudi Arabia is expected to shoulder the bulk of any production cuts along with its Gulf allies. In return, Iran has agreed to freeze production at around 3.8 million barrels a day, which is close to its current rate of production, according to third-party assessments used by Opec.
Iraq, which has disputed its need to cut and looked like it could block a deal, also appears to have given ground.
Indonesia has been suspended from the organisation and so the precise output ceiling has yet to be determined, delegates said. It produced more than 700,000 barrels a day last month but is the sole net oil importer in the group.
A deal could help the oil market recover from its longest downturn in a generation, which has hit the share prices of oil companies and sent big producing countries spiralling downwards into recession.
Accord
In September Opec reached a provisional accord in Algiers to bring its total production down to between 32.5 million barrels a day and 33 million barrels a day from a near record 33.8 million barrels a day at the moment. However, two months later the group was still trying to reach an agreement on how the cuts would be apportioned.
Bijan Zanganeh, Iran’s oil minister, said all Opec members were ready to compromise and there was a “framework for a deal”.
Sources in Vienna said there could be a meeting between Opec and non-members countries in the next couple of weeks. – Copyright The Financial Times Limited 2016
