OPEC engineers production cut to boost oil prices

Qatari Energy Minister Mohammed bin Saleh al-Sada said Saturday that non-OPEC members had agreed to cut a total of 558,000 barrels of oil production per day, a little less than the 600,000 the international oil cartel, the Organization of the Petroleum Exporting Countries (OPEC) had hoped for.

The new cuts by non-members come on top of an OPEC decision on November 30 to reduce member output by 1.2 million barrels a day.

Major oil producers, such as Russia and Saudi Arabia, have seen an oil glut send down prices and lower state revenues.

This is the first deal between the 13-country OPEC and oil producing non-members since 2001 to cut oil output together.

The market's focus will now switch to compliance with the agreement as OPEC has in the past been accused of playing fast and loose with output quotas.

Nigeria and Libya are exempt from the November deal due to production-denting civil strife, which places further pressure on OPEC leader Saudi Arabia to cut most.

Russia, which 15 years ago failed to deliver on promises to cut in tandem with OPEC, is expected to perform real output reductions this time.

"This agreement cements and prepares us for long-term cooperation," Saudi Energy Minister Khalid al-Falih told reporters after the meeting, calling the deal "historic."

Russian Energy Minister Alexander Novak said, "Today's deal will speed up the oil market stabilization, reduce volatility, attract new investments."

What will happen to the oil prices

OPEC is now seen targeting an oil price of $60 per barrel.

Oil prices dropped steeply after Saudi Arabia raised output in an effort to drive American shale oil companies out of the market. The subsequent decline in prices - from as high as $115 per barrel in mid-2014 to below $50 - has stymied growth in the US shale sector, which has higher costs than production in Saudi Arabia.

However, the decline in oil prices also hit the oil revenues of Saudi Arabia and Russia, leading the two countries to begin discussing oil cooperation for the first time in more than two decades.

OPEC consists of 13 members: Saudi Arabia, Algeria, Angola, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, UAE and Venezuela. Non-members with which OPEC has consulted over the cuts include Russia and Oman.

bc,jbh/ sms (Reuters, AP)