The most imaginative forecasts have been proven right as the deal that was considered impossible until yesterday is reached. For the first time since 2008, following months of talks, push-pull and turnarounds, the 14 members of OPEC meeting in Vienna have agreed on a framework to cut their combined output by 1.2 million bpd. Reuters picked up the news before the official press conference in Vienna, reporting that the agreement is in line with the preliminary one reached in Algiers in late September, limiting output from the current 33.6 million bpd to 32.5 million.
An obstacle course
The decision was all but given up for lost until the last minute due to the opposition of Iraq and Iran and a tug-of-war with Saudi Arabia. Part of the credit goes to the Kingdom itself in spite of its unilateral approach. In the end it softened its own position, accepting Iran’s exemption allowing it to expand its production to 3.9 million bpd, 200,000 more than its current output. But more than that, Riyadh will cut its own production by 0.5 million bpd, bringing it down to 10.06 million. Another major obstacle was Russia, with considerable diplomatic efforts spent to appease Putin’s whims and convince him to cut his country’s crude output. Another twist was the suspension of Indonesia from OPEC after only just rejoining in January, having remained out since 2009.
Oil rallies amid skepticism and optimism
Observers have spent the day holding their breath as oil prices wavered, only to shoot up to $48.51 (+7.25%) on the NYSE with the deal’s announcement. The vigorous rise carried the markets with it. Oil stocks already started rising before lunchtime, riding high on the optimism over the new agreement, buoyed by the words of Saudi energy minister Khalid Al-Falih: "We are getting closer and have to agree on the final terms of a fair division of production cuts for each country." In response, WTI went up 6.63% to $48.23/bbl, while Brent went up 7.24% to $49.74.