Oil prices surged on Wednesday after OPEC finally agreed on a deal to cut output during its meeting in Vienna.
This marks the cartel’s first cut since 2008 and reverses its two-year strategy of pumping as much oil as desired.
Additionally, Russia, which is not a member of OPEC but is one of the world’s major oil producers, will also join the cut, according to Reuters.
This is the first time since 2001 the country has joined OPEC in an attempt to boost prices. Non-OPEC members reportedly agreed to reduce output by 600,000 bpd, and Russia will make up 300,000 of that.
All together, OPEC and non-OPEC producers will be reducing output by about 1.8 million bpd — or 2% of the total world output, according to figures cited by Reuters.
The decision to cut reflects oil producers’ desire to end the global glut, which has kept prices depressed for over two years.
Earlier on Wednesday, both Reuters and Bloomberg News reported that an unnamed “delegate to the group” confirmed output will be cut be 1.2 million barrels per day to 32.5 million per day. The Kuwaiti oil minister confirmed the cut to Agence France Presse. It will come into force from January 2017.
As of 5:05 p.m. GMT (12:05 p.m. ET), the price of Brent oil bounced by more than 9%, or more than $4 per barrel, after cratering on Tuesday afternoon. Oil had held onto gains of around 7% for most of the European afternoon.
Here’s the chart:
The price of US West Texas Intermediate crude has also followed suit:
A deal was reportedly struck after Saudi Arabia and Iran managed to reach a compromise after weeks of tensions. “It appears the Saudis accepted that Iran, as a special case, can raise production to about 3.9 million barrels a day,” Bloomberg says.
Reuters reports that Saudi Arabia will now cut its output to 10.06 million barrels per day, accounting for around 500,000 of the 1.2 million barrel cut. The United Arab Emirates, Kuwait, and Qatar will cut by a combined total of roughly 300,000 barrels per day. Iraq will slash its production levels by 200,000 barrels.
Indonesia has been suspended from the group, and OPEC has agreed to distribute Indonesia’s oil output share among certain countries, Reuters adds.
Reuters’ source also said OPEC’s agreement was as a result of a proposal first tabled by Algeria’s delegation.
In other oil-related news, US stockpiles of the commodity unexpectedly fell last week. Inventories dropped 884,000 barrels in the week, compared with analysts’ expectations for an increase of 636,000 barrels. The markets virtually ignored that news, given that all eyes are trained on Vienna.