OPEC agreed on Wednesday (September 28) to cut its oil output for the first time since 2008, with the group’s leader Saudi Arabia softening its stance on arch-rival Iran amid mounting pressure from low oil prices.
Past attempts to reach an output deal have been complicated by political rivalry between Iran and Saudi Arabia, which are fighting several proxy-wars in the Middle East, including in Syria and Yemen.
The agreement represents a strategy shift for Riyadh, which has said it would reduce output to ease a global glut only if every other OPEC and non-OPEC producer followed suit. Iran has argued it should be exempt from such limits as its production recovers after the lifting of EU sanctions earlier this year.
“We came up with a way forward, that is, to consider targeting 32.5 to 33 million barrel per day, target. And we agreed on having a high level technical committee of all OPEC members to study the mechanism of sharing the production at individual countries’ level from now till the 30th of November, to be presented to the next meeting in Vienna.” President of the OPEC conference, Mohammed Bin Salah al-Sada told a news conference after a six hour debate.
How much each country will produce is to be decided at the next formal meeting in November.
“In addition to this task, we have also asked this committee to coordinate with key non-OPEC countries in order to have a collective meeting, collective agreement, so that the process of rebalancing could be accelerated. Market is gonna balance anyway, but we needed to accelerate this rebalancing process by sharing, if you like, the burden of adjusting the production within OPEC countries as well as those key non-OPEC countries who have already indicated their willingness to cooperate,” al-Sada continued.
OPEC sources have said Saudi Arabia offered to reduce its output from summer peaks of 10.7 million bpd to around 10.2 million if Iran agreed to freeze production at around current levels of 3.6-3.7 million bpd.
“Two and a half years, we had a very constructive argument in OPEC, it means that OPEC can overcome to the many, very difficult situation,” Iranian Oil Minister Bijan Zanganeh said after the meeting.
Saudi Arabia is by far the largest OPEC producer with output of more than 10.7 million bpd, on par with Russia and the United States. Together, the three largest global producers extract a third of the world’s oil.
Iran’s production has been stagnant at 3.6 million bpd in the past three months, close to pre-sanctions levels although Tehran says it wants to ramp up output to more than 4 million bpd when foreign investments in its fields kick in.
The Saudi and Iranian economies depend heavily on oil but in a post-sanctions environment, Iran is suffering less pressure from the halving in crude prices since 2014 and its economy could expand by almost 4 percent this year, according to the International Monetary Fund.
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