OPEC closer to deal to cut oil output, sparking price rally

OPEC closer to deal to cut oil output, sparking price rally

The OPEC oil cartel held tense talks on Wednesday to try to agree its first output cut in eight years, sending oil prices soaring on hopes it will defy gloomy expectations.

OPEC member Algeria was proposing to set a new production ceiling at 32.5 million barrels per day, down from current levels of 33.6 million.

The meeting of the Organization of the Petroleum Exporting Countries in Vienna comes amid a glut of global oil supply that has suppressed energy prices and increased tensions between members Saudi Arabia, Iran and Iraq.

In the past year, OPEC leaders have tried several times to agree on production curbs, but these attempts have failed.

Crude oil prices also soared in anticipation of an agreement to lower output, which would be the first since 2008. Al-Falih, the Saudi, said he was hoping for "600,000 combined from non-OPEC", and aparticipant who demanded anonymity because he was not authorized to comment on the closed consultations said Russian Federation was expected to account for two-thirds of that amount.

"We don't know (if a deal will be reached)", he said.

In the United Kingdom, the AA's spokesman Luke Bosdet said higher oil prices could "ravage family budgets".

While the price of oil rose Wednesday, analysts say they will not restore them to the levels over $100 a barrel.

An OPEC deal would be aimed at cutting into a global oversupply of oil that has severely depressed prices since 2014.

A production cut could have a lasting impact on consumers as oil price increases feed into the cost of vehicle fuel, heating and electricity.

"A long spell of higher prices, aggravated by a weak pound, could ravage family budgets as badly as the added cost of winter motoring".

OPEC announced that it also, as a part of this agreement, created a "monitoring committee" that would presumably police member countries' adherence to their respective production quotas.

A decision to cut has been hindered by a rivalry between Saudi Arabia, Opec's top producer, and Iran.

"The fact that geopolitical rivals, Saudi Arabia and Iran, appear to have problems resolving their differences on the allocation of any cartel-wide production cuts seems to be the major stumbling block to any agreement", said Barnabas Gan, an economist at OCBC bank in Singapore, said earlier Wednesday.

OPEC had for years been undermined by infighting but also stayed away from production cuts in order to not lose market share to the resurgent USA oil industry.

Going into Wednesday's meeting, however, Saudi energy minister Khalid al-Falih had been optimistic.

Bulk of the reduction would come from Saudi Arabia, which would account for 486,000 bpd, while Iranian output will rise by 90,000 bpd with the Islamic republic consenting to keeping its production level below its stated ambition of 4m bpd.