Oil surges as Opec, non-Opec producers agree on output cuts

Oil producing nations on Wednesday agreed on the first joint output cuts by Opec and non-Opec producers in 15 years and the first output cut by Opec since 2008, which pushed crude oil prices by around 10 per cent.

Opec has reached a deal to reduce their combined oil production by 1.2 million barrels per day in order to raise global prices. Opec has 13 major oil producing and exporting countries, including Saudi Arabia, Iran, and Iraq – which together account for a third of global oil output - as members.

OPEC nations currently produce 33.7 million barrels of oil per day and the proposed cutback will restrict total Opec output to 32.5 million barrels per day, with Saudi Arabia, Iraq, UAE, and Kuwait making the largest cuts.

Markets reacted quickly, with Brent crude rising from $46 per barrel up to $51 per barrel. But this is far lower compared to levels in 2014, before the oil market crashed:

An Opec-non-Opec deal was made possible by a deal within the Opec with Saudi Arabia accepting "a big hit" on its production and dropping its demand that Iran slash output, while Iraq agreed to rein in booming production to help prices.

Non-Opec oil producer Russia will join output cuts for the first time in 15 years to help prop up oil prices.

Both Iran and Iraq are ramping up oil production after years of cut-backs amidst long-drawn conflicts with the West while Russia was skeptical of Opec members agreeing to a deal or implementing it if arrived at.

The lone dissenting note came from Indonesia, the East Asian member of the oil cartel that rejoined the producer group only this year, saying it was not willing to comply with the output cuts and that it would rather suspend its Opec membership.

Oil prices, later eased slightly in early Asian trading on concerns that other producers, especially US shale drillers, could increase production with rising oil prices.

However, Opec kingpin Saudi Arabia agreeing to an output cut along with Russia, in itself is a big achievement for the oil market, as the decision comes amidst huge political hurdles with Iran and Russia effectively fighting two proxy wars against Saudi Arabia, in Yemen and Syria.