VIENNA (AP) Oil prices spiked sharply higher Friday as major oil producers, including the OPEC cartel, agreed to cut global oil production by 1.2 million barrels a day to reduce oversupply.
Following two days of meetings, the Organization of the Petroleum Exporting Countries that includes the likes of Saudi Arabia and Iraq said they would cut 800,000 barrels per day for six months from January, though some countries such as Iran, which is facing wide-ranging sanctions from the United States, have been given an exemption.
The balance will come from Russia and other non-OPEC countries. The United States, one of the worlds biggest producers, is not part of the deal.
This is a major step forward, said United Arab Emirates Energy Minister Suhail Mohamed al-Mazrouei, who chairs the regular meetings in Vienna in his capacity as President of the OPEC Conference.
Oil producers have been under pressure to reduce production following a sharp fall in oil prices over the past couple of months. The price of oil has fallen about 25 percent recently because major producers including the U.S. are pumping oil at high rates.
The reduction has certainly met with the response hoped for by ministers as it was at the upper end of most predictions. Following the announcement, Brent crude, the international standard, was up $2.79 a barrel, or 4.7 percent, at $62.85. Benchmark New York crude was $2.11, or 4.1 percent, higher at $53.60 a barrel.
Ann-Louise Hittle, a vice president at oil industry expert Wood Mackenzie, said the production cut would tighten the oil market by the third quarter next year and help lift Brent prices back above $70 per barrel.
For most nations, self-interest ultimately prevails, she said. Saudi Arabia has a long-term goal of managing the oil market to avoid the sharp falls and spikes which hurt demand and the ability of the industry to develop supply. On top of this, Saudi Arabia also needs higher oil revenues to fund domestic Saudi spending.
