The oil cartel – OPEC has agreed on a path-breaking oil production cut that may test the current low crude price era. This is the first time in eight years that the influential organization of the oil producers agreeing on production cut to stabilize prices. The last production limiting consensus was in 2008.
In the latest meeting at Algiers, the OPEC countries decided to limit production to a range of 32.5 to 33 million barrels of oil per day from 33.4 million at present. The production cut will be led by Saudi Arabia, the largest oil producer. Saudi is expected to give up 350,000 barrels a day, according to a senior OPEC source quoting the final proposal. Other OPEC nations are expected to lower production in their own numbers. Three countries- Iran, Libya and Nigeria are exempted from the production cuts because of their economic woes.
Oil prices were as high as $100 a barrel in mid-2014 and were even higher in the previous years. A global glut caused by the entry of shale producers brought down prices steeply and reached a low of $26 a barrel in February this year.
The new agreement will bring a fresh phase in the global crude market after a prolonged tight period for the producers. It may open a new front in the war between the conventional oil producers and the new generation shale producers of the US. The shale producers were looking for more space as price has reached a suffocating low level for them. But market analysts believe that the present cut is a moderate one and can’t make a big recovery in prices.