OPEC Production Deal Finalized

The Organization of Petroleum Exporting Countries (OPEC) has reached a deal among all 14 member countries to curtail oil production for the first time since 2008, the oil-producing cartel announced from its headquarters in Vienna on Wednesday.

OPEC agreed its first oil output cuts since 2008 after Saudi Arabia accepted "a big hit" on its production and dropped its demand on arch-rival Iran to slash output. The 14-member Organisation of the Petroleum Exporting Countries accounts for a third of global oil production.

Saudi Arabia will take the lion's share of cuts by reducing output by almost 0.5 million bpd to 10.06 million bpd. Its Gulf OPEC allies - the United Arab Emirates, Kuwait and Qatar - would cut by a total 0.3 million bpd.

Iraq, which had insisted on higher output quotas to fund its fight against Islamic State militants, unexpectedly agreed to reduce production - by 0.2 million bpd.

Non-OPEC Russia will also join output reductions for the first time in 15 years to help the Organization of the Petroleum Exporting Countries prop up oil prices. Russia, which is not part of OPEC, has also agreed to "gradually" reduce its output by up to 300,000 barrels per day, the country's energy minister Alexander Novak said.

A combined output reduction of 1.8 million bpd by OPEC and non-OPEC represents almost 2 percent of global output and would help the market clear a stocks overhang, which had sent prices crashing from levels as high as $115 a barrel seen in mid-2014.

After weeks of often tense negotiations, the eventual alignment of OPEC’s biggest producers points to the increasing dominance of Iran among the group’s top ranks. It’s allowed to raise output to about 3.8 million barrels a day, a victory for a country that’s long sought special treatment as it recovers from sanctions. Saudi Arabia previously proposed that its regional rival limit output to 3.707 million barrels a day, delegates said.

"As long as US oil production growth remains modest, and OPEC adheres to announced production cuts, the re-balancing of global oil market could be pulled forward into the first half of 2017," Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said

"OPEC has proved to the sceptics that it is not dead. The move will speed up market rebalancing and erosion of the global oil glut," said OPEC watcher Amrita Sen from consultancy Energy Aspects.

News of the deal will also come as a relief to poorer OPEC members, such as Venezuela, which is struggling with severe food shortages and massively high inflation. Venezuela relies on the oil and gas sector for around 25% of its GDP.

The oil price has surged by over 8% today, putting Brent crude over $50 per barrel.