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The Opec+ oil cartel has agreed a deal to cut an extra 1mn barrels a day of oil production while Saudi Arabia will extend a voluntary cut of a similar amount, two people familiar with the decision said on Thursday.
The move boosted Brent crude above $84 a barrel — up about 1.3 per cent on the day and up 6 per cent since Friday to its highest level in three weeks. It came after the Opec+ meeting was delayed from Sunday as Saudi Arabia pushed members to make additional production cuts.
The oil cartel is trying to bolster prices that have slipped in recent months while tensions in the Middle East are being heightened by the Israel-Hamas war.
Saudi Arabia, the group’s most powerful member, has won further group-wide production cuts under which other members will agree to contribute, according to people close to the kingdom. This follows difficult discussions with countries that have been more hesitant to cut supply.
The kingdom had warned it could unwind its existing voluntary cut of 1mn b/d if other members did not make a greater contribution, according to delegates and people close to Riyadh’s thinking, leaving oil markets on a knife edge ahead of Thursday’s meeting.
The deal is in line with what the Financial Times reported Saudi Arabia had a provisional agreement for earlier on Thursday. The additional group-wide 1mn b/d cut comes on top of the kingdom’s extension of its temporary voluntary curbs — also of 1mn b/d — that had been due to expire at the end of this year.
“The general expectation was additional cuts but, of course, there was the fear it could crumble altogether with Saudi Arabia returning to normal production,” said Bjarne Schieldrop, chief analyst of commodities at SEB.
Under the deal, the details of which are being finalised and voted on in the online meeting, Russia is expected to increase its voluntary reduction of 300,000 barrels a day while other members will make additional contributions.
The full breakdown of the allocation of the cuts is not yet available.
Analysts had warned before the meeting that failure to finalise a deal to further restrict production would probably lead to a fall in oil prices. Prices have already retreated from just below $100 a barrel in September because of the stuttering global economy and growing supplies outside the cartel’s quota system.
The backdrop of the Israel-Hamas war had further increased tensions between many Opec members and western countries. The US had cautioned against pushing up prices, with US President Joe Biden focused on costs at the pump ahead of next year’s presidential election.
People close to the powerful Gulf members have ruled out the possibility of an embargo similar to the measures taken by the cartel during the 1973 Yom Kippur war. But the FT reported this month that Opec countries might be looking to send a signal over the US’s backing for Israel amid the high level of destruction in Gaza.
Agreements by other members to make production cuts of their own were crucial to securing the deal.
The delay to the meeting from Sunday was partly motivated by talks with African members, including Angola and Nigeria, which have pushed back against attempts to curb their output.
But there was a breakthrough on Thursday morning. The United Arab Emirates, a close ally of Saudi Arabia within Opec, agreed to back the cuts having already won a substantially higher baseline and output target for 2024 at the group’s last meeting in June. Its production will still rise but by less than previously indicated.
The UAE is also hosting the UN COP28 climate talks, which begin on Thursday.
Opec secretary-general Haitham Al Ghais said on Thursday that the oil industry was “part of the solution, not the problem” to tackling climate change, despite criticism from environmental activists over the growing influence of fossil fuel producers over the talks.
Additional reporting by Tom Wilson in London
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