‘Significant’ production cut shows OPEC still powerful

Desert oil pumps1A scheme by OPEC to reduce oil output by roughly 2% of global production is “significant” and shows the cartel still has the power to move energy markets.

The plan is for OPEC members to cut production by 1.2 million barrels a day and for non-OPEC members to cut by a further 600,000 barrels a day.

“This is a much bigger cut than most people thought we’d get and could send the oil price up to between $56-$60 per barrel,” said Bob Minter, an investment strategist at Aberdeen Asset Management.

It will take several months to confirm whether the proposed cuts have been made, but the announcement of an OPEC committee to monitor production means “the agreement appears to have teeth”, Minter added.

The production cut, which was led by OPEC’s most powerful member, Saudi Arabia, marks a u-turn for the cartel. After the oil price fell in 2014, Saudi Arabia refused to cut production in the hope of driving the nascent shale oil industry out of business and protecting its market share. The country’s move to reduce production more than two years after the initial collapse in price suggests an acceptance its policy has failed.

On December 2, two days after the OPEC announcement, the price of a barrel of Brent crude had risen to more than $50, up from around $46 before the news.

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