Oil traders will be braced to see how oil prices react after Organization of the Petroleum Exporting Countries agreed to slash production at a conference in Algeria.
The accord could help ease the global glut of oil that has inundated markets around the world in the last two years. But it could also raise prices.
In the statement, the members noted that “world oil demand remains robust, while the prospects of future supplies are being negatively impacted by deep cuts in investments and massive layoffs.”
As a result, it said it will limit production to 32.5 to 33.0 million barrels a day. The goal is to “accelerate the ongoing drawdown of the stock overhang and bring the rebalancing forward.”
Although past sessions have not always gone well, this time members were apparently more determined.
“The efforts to build a consensus have been exemplary, and I very much hope that the constructive, accommodating and encouraging nature of our recent talks carries on today,” says Mohammed Bin Saleh Al-Sada, Qatar’s ministry of energy and industry and president of the OPEC Conference, in his prepared remarks.
The price of West Texas Intermediate crude oil, the U.S. benchmark, soared 4.45% to settle at $46.66 in trading in New York on Wednesday on reports, unconfirmed at the time, that a deal has been struck. It was announced later.
It’s not all good news for energy companies. OPEC’s actions come after the market for crude oil has remained depressed for a longer-than-expected period.
Goldman Sachs analyst Damien Courvalin on Tuesday lowered his fourth-quarter forecast for oil from $50 per barrel to $43 per barrel.
The industry has been awash in crude after the energy boom in the U.S. and the renewal of production in Iran following the lifting of nuclear sanctions. As Saudi Arabia repeatedly refused to pull back, the commodity has suffered sharp declines.
An OPEC deal could help. But the member countries are notorious for quietly breaking agreements to squeeze out more revenue.
“History suggests that cuts are only poorly enforced, even by core OPEC members such as Saudi, Kuwait and the United Arab Emirates, unless they are demand driven as in that case, weak refinery demand enforces compliance,” Courvalin said Tuesday in a research note.
This report originally appeared in USAToday