OPEC agrees to cut oil output

OPEC has agreed to cut oil production among its members in a bid to stabilise oil markets.

Yesterday marked the first time in eight years that OPEC has agreed to reduce production, and appears to have come as a surprise to the markets, where crude prices climbed by more than 5%. Efforts among producers to lift oil prices by limiting production have been hampered by political infighting among OPEC’s members, notably a serious division between Saudi Arabia and Iran.

OPEC plans to cut its total member output to 32.5m–33m bbl/d, from 33.24m bbl/d in August, in an effort to reduce oil stockpiles and rebalance the market. Who will make the cuts – and when – remains unknown, as OPEC has agreed to form a committee to recommend measures for consideration at a meeting in November.

Brent crude has fluctuated today around US$48–49/bbl – down from US$110 two years ago. The effect of the low oil price has hit exporters hard, with Bloomberg reporting in April that the world’s top 18 producers have burned through around a fifth of their foreign exchange reserves – worth US$315bn – since November 2014.

OPEC’s committee will also consult with non-OPEC oil-producing countries on measures to balance the market.

The decision follows a unilateral agreement between Russia and Saudi Arabia to stabilise the market announced earlier this month. The countries said they would consider freezing oil output and would act alone if other countries did not commit to co-ordinated action.