OPEC ministers Wednesday entered a six-month agreement on output intended to boost weak oil prices by curtailing production in a period of rising demand, OPEC Secretary General Subroto said.
Ministers from the member nations of the Organization of Petroleum Exporting Countries met for five days to nail down the accord, which they hope will drain excess crude from a saturated market and allow prices--trapped at nearly $6 a barrel below OPEC’s goal of $21--to rise.
All of the members except Iraq signed the pact, Subroto told reporters. He also noted that Kuwait has re-entered the group’s quota system. Kuwait had been a dissenter since June.
OPEC President Jean Ping of Gabon called the accord “probably one of the best agreements” OPEC has forged.
Benchmark North Sea Brent crude for November delivery rose 64 cents Wednesday to $17.30 a barrel in late London futures trading. U.S. crude oil futures rose 71 cents on the New York Mercantile Exchange and settled at $18.67 a barrel.
Prodded by a call for higher prices from the leaders of Saudi Arabia and Iran (OPEC’s biggest producers and historical rivals), the ministers had agreed Monday to set a cumulative output limit of 24.5 million barrels a day, well below the anticipated winter demand.
That trims production from its current level, which independent monitors say has exceeded by a million barrels the 23.6-million-barrels-daily ceiling that OPEC set in June and then largely ignored. Markets have been awash with oil at a time of feeble demand.
The quota busting helped to lop about 20% off the price of OPEC oil this year; it has cost the group $6 billion in lost revenue since March.
The ministers needed two more days to overcome Kuwait’s reservations about accepting too low a quota. In the end, Kuwait accepted a limit of 2 million barrels a day, a level others had been pressing for but less oil than what Kuwait says it is already pumping.
Kuwait--citing the losses caused by Iraqi troops torching its oil fields in the 1991 Gulf War--had fought for 2.16 million barrels a day to be level with the United Arab Emirates.
Saudi Arabia agreed to freeze its output at 8 million barrels a day, thus giving up some of its market share to help make the deal possible.
The OPEC ministers had been under pressure to come up with a credible accord to prove they mean business about pushing prices higher.
“I think OPEC members realized this is not a game,” said Abdullah Hamad Attiyah, oil minister of Qatar. “This is a very serious matter.”
By trimming output during the northern winter, OPEC hopes to boost prices as much as $5 a barrel and raise more revenue for its members, many of whom are in desperate need of cash. The new quota accord was made valid for six months; previous ones lasted three months.
Venezuelan Oil Minister Alirio Parra said he thinks the agreement might be the most realistic one OPEC has ever struck.
“It is perhaps the most realistic agreement in the long history of OPEC setting quotas, and I think it may be the most credible in the market,” Parra said.