VIENNA, Nov 30 — Opec is near an agreement to cut production for the first time in eight years, sending oil prices surging on optimism a deal with start to drain record global inventories.
Under the terms being discussed by ministers in Vienna, the group would cut production by 1.4 million barrels a day, equivalent to about 1.5 per cent of global production, according to a delegate. In addition, oil producers outside Opec, including Russia, would contribute cuts of about 600,000 barrels a day, they said.
The outlines of the deal emerged as ministers on their way into the meeting struck a markedly more optimistic tone than in recent days, signalling the group’s three largest producers — Saudi Arabia, Iran and Iraq — have overcome differences on how to share the burden of cuts. It appears Iran will be able to raise production as it recovers from sanctions on its oil industry.
“I am very optimistic we’re going to come up with very fruitful results,” Iraqi Oil Minister Jabbar al-Luaibi said, before sitting down for the final ministerial meeting. “There will be a cut, yes, definitely.”
Benchmark Brent oil futures rose as much as 8.8 per cent in London trading, the biggest gain since February, to US$50.45 (RM225) a barrel.
Following two years of low prices, the Opec meeting has become a magnet for global finance, with hedge fund managers, institutional investors and top oil traders mingling with officials and ministers at the upmarket Hyatt, Ritz Carlton and Kempinski hotels in Vienna. Beyond oil, the Opec gathering is now at the centre of global macro trades from the Canadian dollar to Nigerian bonds to US shale equities.
Saudi Arabia has accepted that Iran can raise oil production as high as about 3.9 million barrels a day within the framework of the supply deal currently under discussion in Vienna, according to three people familiar with the matter. Iran previously suggested it freeze production at 3.975 million barrels a day, or about 200,000 barrels a day above current output, two Opec delegates said Monday.
The Opec deal would be a six-month accord monitored by a committee, said Iraq’s al-Luaibi, adding that he hopes the curbs will boost the oil price to more than US$55 a barrel.
Opec will reach an agreement and Russia will join in cuts following talks between Vladimir Putin and Iranian president Hassan Rouhani, according to Iranian Oil Minister Bijan Zanganeh.
“The Russian energy ministry, which met with our friends Algeria and Venezuela in Russia, changed their view and said they will cut their production,” he said today.
If there is an Opec agreement to cut output that assigns production quotas to members, then Russia is ready to join the deal with a more flexible position than a freeze, including potentially decreasing its own production, said a person familiar with Russian thinking.
The Kremlin had previously resisted requests that it join the cut, offering instead to freeze production at current levels.
Other senior Opec officials were optimistic about a deal going into the meeting. Mohammed Barkindo, secretary-general of the Organisation of Petroleum Exporting Countries, and United Arab Emirates Oil Minister Suhail Mohammed Al Mazrouei, who said he expects some good news later in the day.
“The sentiment generally is optimistic and positive,” Saudi Arabia’s Oil Minister Khalid Al-Falih said today. “Any production-restraint agreement has to be distributed in an equitable way. We are getting close.”
“We’re optimistic,” Nigeria’s Minister of State for Petroleum Emmanuel Kachikwu said in a Bloomberg TV interview from Vienna. “There’s still a few gray areas we have to patch up, but I like to go in believing that we’re going to reach a deal.”
Iran, Nigeria and Libya will be exempt from any Opec agreement to cut supply, while Iraq is expected to make a reduction, Venezuelan Energy Minister Eulogio Del Pino told reporters at Opec’s headquarters before the formal meeting started.
“There will be a production cut, agreed by everyone, with quotas for countries,” Algerian Energy Minister Noureddine Boutarfa said today. Algeria “put the proposal on the table and it was the one that was agreed,” he said. — Bloomberg