OPEC agrees to limit output in first deal since 2008

OPEC member countries agreed on Wednesday to a surprise cut in oil output to restore balance to the market, the first such deal since 2008, following their meeting on the sidelines of the International Energy Forum in Algeria.

The producer group said in a statement that it would limit production to range between 32.5 and 33 million barrels per day (mbd), in order to “accelerate the ongoing drawdown of the stock overhang and bring the rebalancing forward.”

OPEC’s current output is estimated at 33.5 mbd.  

Crude prices soared nearly 6 percent after the deal, before paring gains on Thursday. Brent crude last settled at $48.71 per barrel (bbl), while WTI was trading 0.2 percent higher at $47.13.

“It is not advisable to ignore the potential risk that the present stock overhang may continue to weigh negatively well into the future, with a worsening impact on producers, consumers and the industry,” the cartel said.

Based on current market conditions, OPEC noted that it has decided to pursue “serious and constructive dialogue” with non-member countries in a bid to stabilize the market.

The producer group will establish a committee consisting of representatives from member nations to study and recommend the implementation of production levels for individual countries, the statement added.

Earlier this week, Saudi Arabia’s energy minister Khalid al-Falih said the meeting between OPEC and non-member exporters in Algeria would be “consultative,” further dimming hopes for an output deal. His remarks came after OPEC Secretary-General Mohammed Barkindo said the meeting would be an informal one and not for decision-making.

While some analysts had expressed skepticism over an agreement being reached, others said that it was still likely member countries could strike a deal.

“There is a possibility of reaching an agreement in Algiers, but it could face many difficulties: the production levels in each country, the gradual return of Nigeria and Libya to the market, [and] the timing of the production freeze,” Mohammad al-Sabban, a Saudi economist and former senior adviser to the kingdom’s oil ministry, told Argaam.

Oil prices have tumbled over 55 percent from highs of over a $100 a barrel in mid-2014 amid a supply glut in the market. Revenues of oil-exporting countries and companies have significantly declined as a result, leading to massive layoffs and investment cuts worldwide.