First agreement between Opec and non-members since 2001 to jointly limit output is likely to raise prices

This article is more than 3 years old

This article is more than 3 years old

Oil-producing nations that do not belong to the Opec cartel have agreed to cut output by 562,000 barrels a day, Opec sources have said.

The agreement would be the first between the two groups since 2001 to jointly limit oil output. It aims to ease a global glut after more than two years of low prices that have overstretched many governments’ budgets and spurred unrest in some countries.

Last week Opec agreed to slash output by 1.2m barrels a day to 32.5m from 1 January, with top exporter Saudi Arabia cutting as much as 486,000 barrels a day.

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Before talks in Vienna on Saturday, the Opec secretary-general, Mohammed Barkindo, said a deal would boost the global economy by sending prices higher and therefore helping some rich countries tackle low inflation.

Oil prices have more than halved in the past two years after Saudi Arabia raised output steeply in an attempt to drive higher-cost producers such as US shale firms out of the market.

The plunge in oil to below $50 per barrel – and sometimes even below $30 – from as high as $115 in mid-2014 has helped reduce growth in US shale. However, it also hit the revenues of oil-dependent economies including Saudi Arabia and Russia, prompting the two biggest crude exporters to start their first oil cooperation talks in 15 years.

Apart from Russia, the talks on Saturday were attended by or had comments or commitments sent from non-Opec members Azerbaijan, Bahrain, Bolivia, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan and South Sudan.

Many non-Opec countries such as Mexico and Azerbaijan face a natural drop in oil production, and some analysts expressed doubts that those declines should be counted as cuts.

Focus will now turn to compliance with the agreement, particularly as Opec has a long history of cheating on output quotas.

Gary Ross, an oil industry commentator and founder of the consultancy Pira Energy, said: “They are all enjoying higher prices and compliance tends to be good in the early stages. But then as prices continue to rise, compliance will erode.”

He said he expected Russia to curtail output in line with its pledge of 300,000 barrels a day. Opec would target an oil price of $60 a barrel as anything higher could encourage rival production, Ross added.