OPEC reaches surprise agreement in Algiers

Sunday 02/10/2016
Tentative deal still needs to be confirmed at OPEC meeting in Vienna

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.