Environment & Energy | Friday 30 September, 2016 3:40 am |

OPEC shocked markets with a deal to cut oil output after Saudi Arabia allowed Iran to be exempted, but analysts warned Thursday the move would not likely have a lasting impact. The cartel’s announcement of the first reduction in eight years sent crude prices surging up to six percent Wednesday, while energy firms in the US and Asia followed suit with huge gains.

At the end of six hours of negotiations and weeks of horse trading, OPEC announced the plan to cut production to 32.5-33 million barrels per day from the 33.47 million in August, the International Energy Agency said. The deal, in Algiers during an informal meeting with Russia, was hammered out after the group’s biggest producer Saudi Arabia agreed Iran, which is ramping up output after years of Western economic sanctions, would be exempted from the cut.

Analysts said economic pressure from falling oil revenues pushed OPEC members to reach a deal, while others warned OPEC has a poor track record of fulfilling such commitments, and traders are not sure if Saudi-Iran cooperation would hold.

Details, including which countries make which cuts, will be worked out when 14-member OPEC — which produces about 40 percent of the world’s crude — holds its next twice-yearly meeting in Vienna on Nov. 30.

“Many OPEC members are suffering economically from low prices. Their economies are stagnating or going backwards and they face budgetary issues,” said Greg McKenna, chief market strategist at forex broker AxiTrader. “So it appears the fiscal imperative seems to have trumped OPEC’s internal politics. That means I do think this move in prices and the promised reduction will be sustained,” he told AFP.

Other analysts said the market is likely to be cautious until the details of the deal are worked out, while traders will also be watching whether non-OPEC producers such as Russia, the United States and Canada will also make cuts. The announcement was immediately cheered on oil markets, with West Texas Intermediate soaring more than five percent and Brent tacking on almost six percent. Asian and European stock markets rallied Thursday and energy-linked currencies advanced after OPEC’s shock deal to trim oil output. The announcement Wednesday lit a fire temporarily under oil prices, sending petroleum-linked shares surging on Wall Street and later across Asian and European stock markets.

Despite crude later falling back on doubts about the cartel following up on its deal, energy firms managed to hold onto their strong share price gains.