The Organisation of the Petroleum Exporting Countries, OPEC, has said its agreed oil cut will take effect from January 2017.
The cartel agreed to cut oil production for the first time since 2008.
The decision, which will see 1.2 million barrels cut per day is targeted at pushing up the price of crude, and ending a record glut that has badly affected economies around the world, including Nigeria’s.
The decision is expected to help economies of countries like Nigeria, Libya and Venezuela.
Nigeria was exempted from the cut due to cases of oil pipeline vandalism that have affected its production and export for months.
Oil prices rose Wednesday by nearly eight percent.
The resolution to cut production was taken at the 171st meeting of the group in Vienna, Austria.
Qatari Minister of Energy and President of OPEC, Mohammed Bin Saleh Al-Sada, said at a press conference Wednesday that “We have made a great success today”.
“With the co-operation and understanding of all member countries, we have been able to reach an agreement,” he said.
“This agreement comes from a sense of responsibility for OPEC member companies, and for non-OPEC member countries, and the health and wellbeing of the world economy.”
He said the oil market needs to be rebalanced, and that needs “courageous decisions from OPEC and with the support of other countries”.
The agreement is contingent on non-OPEC members agreeing to cut their own output by 600,000 per day, he added.
He also revealed that Russia has already agreed to reduce output by 300,000 per day.
OPEC also set up a new ministerial monitoring committee to ensure compliance with this deal. The committee is chaired by Kuwait, Venezuela and Algeria.
On Monday, the Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu said that despite the rise in crude price due to the production cut announced by OPEC, Nigeria should be worried about the United States not flooding the market with its shale oil.
He said; “Apart from the OPEC cut, I am worried that when we make a cut and get the normal price, there is the possibility of shale production limping up again. So how do we converge everyone producing oil? I believe that until we get Russia, US producers and some understanding with the consumers, we might not get a solution.”
However, Kachikwu said Nigeria may not benefit from the deal except the commodity’s prices rises above $54 per barrel.
The minister said the healthy price of crude for Nigeria would be in the mid-$50s “As for Nigeria, a healthy oil price would be mid-50s: 54, 55, 56; I mean, if we have a Santa Claus day, then 60. But frankly, looking more to mid-50s,” he said.
OPEC’s cut by 1.2 million barrels a day brings its production to 32.5 million a day.
After weeks of often tense negotiations, OPEC three biggest producers- Saudi Arabia, Iraq and Iran resolved differences over sharing the burden of cuts.
The agreement is also likely to include an additional reduction of about 600,000 barrels a day by non-OPEC countries.
“This should be a wake-up call for skeptics who have argued the death of OPEC,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd. “The group wants to push inventories down.”
However, according to analysts, the consequences of the cut will reverberate far beyond OPEC, giving a boost to U.S. shale drillers crippled by a two-year price rout and oil giants such as Royal Dutch Shell Plc, which have cut spending to the bone to weather the prolonged downturn.
Morgan Stanley said Monday that an OPEC agreement could boost crude prices by $5 or more. While the deal is unlikely to be enough to wipe out the crude glut entirely — OPEC’s own estimates show it needs to pump just 31.9 million barrels a day from January to June to balance supply and demand — it clears the way for participation by non-OPEC suppliers, chiefly Russia.

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