Oil prices soar on OPEC plan to lower production

Global oil prices surged significantly overnight after the Organisation of the Petroleum Exporting Countries (OPEC) took the surprising move to cut production from January next year.

At an OPEC meeting in Austria, it was announced that production would be lowered to 32.5 million barrels a day – a reduction of about three per cent – for a six-month period to help end the oversupply in the marketplace that moved prices as low as $27 a barrel.

The decision sent global oil prices as much as 10 per cent higher to more than US$50 a barrel, the largest increase in a day since February.

OPEC’s agreement to cut production comes after months of intense discussions between major producers Saudi Arabia, Iran and Iraq. A Patersons Securities note said the move was the “first such accord in around eight years.”

“Now to adhere to it,” the note stated. “The Iranians are the clear-cut winners under the deal with the country able to increase its production to around 3.8 million barrels a day.

“One wonders whether Saudi movers and shakers will be happy with such an arrangement – the latter country is to reduce its output by almost 500,000 barrels a day to around 10.06 million barrels a day. The number two OPEC producer, Iraq, has pledged to trim its production by 210,000 barrels a day.”

Elsewhere, Russia plans to cut production by up to 300,000 barrels a day, “conditional on its technical abilities,” its oil minister said.

The six-month agreement will be reviewed at OPEC’s next meeting on May 25 2017.