Producers agree to limits
Oil price lifted by Opec supply cut
After rising by 10% on Wednesday Brent crude was up 4% today at $53.96 a barrel. BP shares rose 1% while Royal Dutch Shell was up by about 1.3%.
OPEC produces a third of global oil, equal to 33.6 million barrels a day, and under the deal it will reduce output by about 1.2 million bpd from January.
Saudi Arabia accepted what its energy minister Khalid al-Falih described as “a big hit”, while Iran has frozen output at pre-sanctions levels.
Analysts and traders noted the easing of tensions between Saudi Arabia and Iran which went a long way to the Opec nations reaching agreement.
The Iranians are said to have been satisfied that they were not being asked to cut production. Non-Opec producer Russia is ready to reduce production for the first time in 15 years.
Russian Energy Minister Alexander Novak said: “Russia will gradually cut output in the first half of 2017 by up to 300,000 barrels per day, on a tight schedule as technical capabilities allow.”
Oil company shares rose on the news, as did Asian markets. The Nikkei in Japan was up 1% after being as much as 2.3% higher. Hong Kong’s Hang Seng rose 0.6% while the Shanghai Composite ticked up 0.5%.
Not everyone was happy with the deal. Indonesia, the cartel’s only Asian member, is suspending its membership as it is not willing to cut its production.
A rise in the price will be a boost to the North Sea oil sector, as it will make existing operations more viable and the prospect of further rise should encourage investment and orders.
However, it is likely to affect UK inflation because petrol will be more expensive, and it will cost more to transport goods and heat our homes.