Since 2008, for first time OPEC reach to decision to cut oil output on Wednesday with Saudi Arabia, group’s leader has soften carriage on arch-rival Iran in the middle of pressure of low oil prices. Two sources in the Organization of the Petroleum Exporting Countries said the group would reduce output to 32.5 million barrels per day from current production of 33.24 million bpd.
Bijan Zanganeh, Iranian Oil Minister told to SHANA news agency, “OPEC made a historical decision in two and a half years; OPEC is set its aim to manage market.”
OPEC’s informal meeting still going on after completing five hours in Algeria.
Sources said, in November meeting, OPEC will decide on how much each country will produce and limit also will extended to join cuts to non-OPEC countries like Russia.
Oil prices hikes more than 5 percent to trade above $48 per barrel as of 1924 GMT. Many traders welcomed OPEC decision to handle issue but they want know about details.
Phil Flynn, senior energy analyst at Price Futures Group said, it’s a first deal of OPEC in eight years, the alliance has proved that its possible in this era as well, OPEC claim its victory over production war’.
Director of energy markets at Houston-based Stratas Advisors, Jeff Quigley, said; market yet to decide who will produce what, “I am eager to listen form Iranian oil minister that he is not returning back to his pre-sanction levels and it going against to Saudis what they wish for.
On Tuesday, Khalid al-Falih, Saudi Energy Minister said, OPEC should decide soon in November meeting what should produce what and which country at max limit.
He said, this strategy shows shift for Riyadh, and would reduce output to relieve a global surplus only if other OPEC and non-OPEC producer follow to outfit. Iron argued to relieve it from such limits as production will recover once EU sanctions lifted this year.
According to the International Monetary Fund, the Saudi and Iranian economies mostly depends on oil but in post-sanctions environment, Iran was bearing less pressure to lower oil prices since 2014 and it is expected its economy could expand by almost 4 percent this year.
Riyadh was facing shortfall in the economies in second year of budget and record a gap of $98 billion last year, a a decline economy is being force to cut salaries of government employees.
LOW OIL PRICE PRESSURES
Saudi Arabia is OPEC’s largest producers of oil with output more than 10.7 million bpd, Russia and the United States together make a third largest oil producer of the world.
Production of the Iran was sluggish for last three months reached to 3.6 million bpd, close to pre-sanctions levels. Tehran eager to ramp up its production more than 4 million bpd when foreign investments are there to kicked out.
Saudi oil revenue has been running low in last two years and pressurized to Riyadh to pay a debt billions of dollars form oversees asset every month to pay bills and cut domestic fuel and utility subsidies last year.
Raza Agha, chief Middle East economist at investment bank VTB Capital said Iran is stable and stand behind in every condition for many years. “So such changes may be difficult for Saudi.”
Tehran is under pressure to raise oil revenues and Hassan Rouhani, President is facing forces form conservative opponents to carry a faster economic recovery.
Oil prices run low below the budget set by the most OPEC nations. But it make it difficult to reach to production deal by the political opposition between Iran and Saudi Arabia, as they are fighting proxy-wars in the Middle East, including in Syria and Yemen.
OPEC sources said that they are ready to reduce production output from summer peaks of 10.7 million bpd to around 10.2 million if Iran is ready to freeze their production at around 3.6-3.7 million bpd.
Riyadh output was limited by sanctions but currently it has raised its production to compete for market share. Minister Zanganeh expressed Iran desired to an out cap to close its output to 4 million bpd.