OPEC cuts oil output in bid to end global oversupply

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Wednesday, November 30, 2016

Crude prices climbed above US$50/b on Wednesday as oil exporters' group OPEC announced its first production cut in eight years.

The cartel reached an agreement to slash output to 32.5Mb/d, down from a previous ceiling of 33.6Mb/d, Iranian oil minister Bijan Namdar Zanganeh told reporters in Vienna.

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The deal also calls for a reduction of about 600,000b/d from non-OPEC countries.

Crude prices jumped earlier on Wednesday amid expectations of an accord between OPEC's 14 member nations during a meeting in the Austrian capital.

Benchmark Brent crude rose as high as US$50.46/b, up US$4.08 on its opening price.

OPEC said Iran, Libya and Nigeria, whose production has been hit by sanctions and unrest, would be spared from the cuts.

Venezuela, among the countries hardest hit by a two-and-a-half year oil price slump, was quick to applaud the move.

"I congratulate and thank our OPEC partners for the important agreement that we have reached to stabilize the market," Venezuelan President Nicolás Maduro (pictured) said on Twitter shortly after the announcement.

Maduro added that the deal was the culmination of "two years of efforts to recuperate the market and achieve fair, realistic and stable prices."

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Analysts have blamed weak global demand and higher production from North American shale fields for a crude supply glut.

In September, OPEC agreed a tentative deal to slash output by at least 700,000b/d in a bid to halt a price slide that has eroded oil export revenues and sent shockwaves through global markets.

Crude futures hit US$114/b in June 2014 before slumping to a nadir of US$28/b in January.

Oil-rich Venezuela has lobbied hard for OPEC to cut production but until Wednesday had met strong resistance from Saudi Arabia.

According to CIA World Factbook data, oil and gas revenue accounts for about 96% of Venezuela's export earnings, 45% of budget revenues and 12% of GDP.

The oil crash has escalated concerns about the Caribbean nation's hyperinflation and shortage of essential goods such as basic food and medicine.

The country's dire economic plight has led to mass protests and moves by the opposition to stage a recall referendum against Maduro.