OPEC reaches surprise agreement in Algiers
TUNIS - The Organisation of the Petroleum Exporting Countries (OPEC) oil producers cartel reached a surprise agreement in Algiers to trim production to bolster prices despite the chronic disagreement between Saudi Arabia and its regional rival Iran.
Before Algeria influenced the two countries to endorse the deal, almost nobody expected the group to come close to an agreement at the informal gathering, convened during the International Energy Forum, a feeling that had been reinforced over previous weeks by OPEC ministers and officials.
“What occurred in Algiers was a dramatic turn of events. It is the first deal to cut output by OPEC in eight years,” said Algerian energy analyst Ali Titouche.
OPEC had attempted to forge a deal for more than two years. During a meeting hosted by Qatar in April, the cartel came close to an agreement but prospects for an accord fell apart on the rivalry between Saudi Arabia and Iran.
Under the terms of the Algiers deal, OPEC agreed to set up a committee to look at reducing production to 32.5 million-33 million barrels a day (bpd) down from an estimated August output of 33.2 million bpd, a cut of about 2% of total output.
The tentative deal still needs to be confirmed by OPEC members at their planned November 30th meeting in Vienna.
Algeria’s oil diplomacy had demonstrated its prowess in the past, including hosting a successful OPEC summit in 1975 but divisions and challenges in the cartel have been more numerous over the years.
Crude oil was worth $100 a barrel in the summer of 2014 before slumping to less than $30 a barrel in January of this year mainly because of a boom in US shale oil and leading producers such as Saudi Arabia prioritising market share over prices.
As Iran aims to increase its output from 3.6 million bpd at present to around 4 million bpd, this means to have an overall OPEC cut of 740,000 bpd, more than 1.1 million bpd would have to be cut elsewhere.
Libya and Nigeria are allowed to produce at maximum levels because of unrest and political instability.
Analysts at Goldman Sachs said higher crude prices would prompt the rise of non-OPEC output, particularly of US shale oil. The US oil drilling rig count has risen in 12 of the past 13 weeks.