Global oil producing Organization of the Petroleum Exporting Countries (OPEC) agreed on Wednesday would be its first oil output reduction since 2008. OPEC’s oil output reduction is due to Saudi Arabia’s voluntary “big hit” to force Iran to drop oil output and stabilise the price of oil in the worldwide market.
According to AB Bernstein’s analysts, OPEC had agreed to create a “historic production cut” that would remove about 1.2 million barrels per day and would further cut 0.6 million barrels per day for non-OPEC countries to increase oil prices.
Brent crude oil futures shot up by 10 per cent at $51.88 per barrel. Markets had doubts about the cut’s emergence. According to Barclays, the production levels — and not the export levels — have been cut. The cut is slated for 2017, making it possible that supplies for 2016 to be enough.
Despite the price jump, oil prices remain at 2014 prices before oil’s prices dropped to ground prices due to high production.
OPEC produces a third of global oil. With 33.6 million barrels per day in their production, the oil producer would increase prices of oil with its January 2016 levels of production. Meanwhile, US crude production had increased by 3 per cent this year to 8.7 million barrels per day to compete in a lower priced environment.