Crude oil prices jumped sharply on Wednesday after the Organisation of Petroleum Exporting Countries (OPEC) agreed to limit oil production.
The decision came as a surprise and could help stabilise the oil market at a global level following two straight years of decline.
“The Conference opted for an OPEC-14 production target ranging between 32.5 million barrels per day (bpd) and 33 million bpd”, OPEC said in a statement.
Oil Producers Agree on Production Cut
OPEC members have agreed on this production cut for the first time since 2008 following an informal meeting in Algiers on Wednesday.
The Organisation announced it will curb output to fast-track the current drawdown of the supply glut and bring the rebalancing forward.
According to a statement issued by OPEC, the Conference in Algiers considered current market conditions – “deep cuts in investment and massive layoffs, leading to a potential risk that oil supply may not meet demand in the future”.
Iran and Russia had previously met to discuss potential cooperation
The Conference concluded that “it is not advisable to ignore the potential risk that the present stock overhand may continue to weigh negatively well into the future”.
Based on this, the OPEC members decided to negotiate with non-members to stabilise the oil market and avoid any adverse impacts, under the belief that constructive action will “help restore the balance and sustainability in the market”.
OPEC to Discuss Cooperation in November
OPEC members noted that global oil demand remains robust but future supply prospects are suffering the negative impact from investment cuts and the job situation across the industry.
As a result, the Conference established a High Level Committee to represent member countries, in charge of studying and recommending the implementation of production levels.
As well as this, the Committee will develop a framework to identify risks and take measures to ensure “a balanced oil market on a sustainable basis”, to be considered at OPEC’s next conference in Vienna.
News of the agreement sent oil prices up by 6% on Wednesday.