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| Oil price and stock markets rise as Opec cuts crude output | Oil price and stock markets rise as Opec cuts crude output |
| (35 minutes later) | |
| Oil and share prices have risen after Opec members struck a deal to limit crude output for the first time since 2008, in an attempt to ease a global glut that has halved crude prices in the past two years. | |
| The group of leading oil producing countries has agreed to limit production to between 32.5m and 33m barrels per day (bpd). The figure is a small reduction on current output of 33.24m bpd and was agreed at informal talks at an industry event in Algiers on Wednesday. | The group of leading oil producing countries has agreed to limit production to between 32.5m and 33m barrels per day (bpd). The figure is a small reduction on current output of 33.24m bpd and was agreed at informal talks at an industry event in Algiers on Wednesday. |
| “We have decided to decrease production by around 700,000 bpd,” Iran’s oil minister, Bijan Zanganeh, told Reuters. | “We have decided to decrease production by around 700,000 bpd,” Iran’s oil minister, Bijan Zanganeh, told Reuters. |
| Brent crude initially rose to just over $49 a barrel on Thursday morning, the benchmark’s highest price for more than two weeks, before falling to about $48.30. The FTSE 100 rose more than 1% to 6,923, the index’s highest point since mid-August, with oil and commodities companies leading the charge. | |
| Royal Dutch Shell, Britain’s largest oil company, was the biggest gainer in the sector, rising more than 5%, followed by BP up 4%. Glencore, the commodities trader, British Gas owner Centrica and mining shares also rose strongly as Opec’s move supported prices of other commodities. | Royal Dutch Shell, Britain’s largest oil company, was the biggest gainer in the sector, rising more than 5%, followed by BP up 4%. Glencore, the commodities trader, British Gas owner Centrica and mining shares also rose strongly as Opec’s move supported prices of other commodities. |
| Michael Burns, an oil and gas partner at Ashurt law firm, said: “This could well be a significant turning point. Though the detail is to be worked through, the support from Opec will likely give more confidence to investors on medium to long term prices, something that has been very much lacking over the last two years.” | |
| Opec, whose leading members are Saudi Arabia, Iran and Iraq, will meet to agree individual production targets for each country at its meeting on 30 November in Vienna. | Opec, whose leading members are Saudi Arabia, Iran and Iraq, will meet to agree individual production targets for each country at its meeting on 30 November in Vienna. |
| The agreement to limit production after several failed attempts appears to be a reversal of policy for Saudi Arabia, the world’s biggest oil producer, which had sworn to maintain output despite the price of crude plunging from more than $100 a barrel in summer 2014. | The agreement to limit production after several failed attempts appears to be a reversal of policy for Saudi Arabia, the world’s biggest oil producer, which had sworn to maintain output despite the price of crude plunging from more than $100 a barrel in summer 2014. |
| Oil has fallen due to a global glut caused by shale production in the US and oversupplies from countries such as Brazil, combined with a slowing global economy and lower growth in demand from China. | Oil has fallen due to a global glut caused by shale production in the US and oversupplies from countries such as Brazil, combined with a slowing global economy and lower growth in demand from China. |
| Saudi Arabia kept pumping oil in the hope low prices would put smaller producers out of business, protecting its share of the market by removing competition. The resistance of the Saudis and Iran to output cuts caused divisions in Opec as low prices inflicted pain on member states’ economies. | Saudi Arabia kept pumping oil in the hope low prices would put smaller producers out of business, protecting its share of the market by removing competition. The resistance of the Saudis and Iran to output cuts caused divisions in Opec as low prices inflicted pain on member states’ economies. |
| More recently, Saudi Arabia’s resolve has weakened as the prolonged low oil price has forced it to cut public spending to protect its financial reserves. | More recently, Saudi Arabia’s resolve has weakened as the prolonged low oil price has forced it to cut public spending to protect its financial reserves. |
| However, Iran has remained unwilling to reduce production, which remains below peak capacity as it recovers from US sanctions lifted this year. | However, Iran has remained unwilling to reduce production, which remains below peak capacity as it recovers from US sanctions lifted this year. |
| Jason Gammel, an oil and gas analyst at the stockbroker Jefferies, said Saudi Arabia is likely to reduce output with Iran allowed to increase production. He said Opec’s announcement could be an attempt to push up prices without reducing supply – but this could ease pressure on rival producers before a likely meeting of supply and demand this year. | |
| “We remain sceptical about any effect in the physical crude market … The risk of abandoning the market share strategy before the market achieves balance is that a higher price could allow new supply from higher up the cost curve to reach the market.” | “We remain sceptical about any effect in the physical crude market … The risk of abandoning the market share strategy before the market achieves balance is that a higher price could allow new supply from higher up the cost curve to reach the market.” |