OPEC gives green light to production cut. Market prices for crude oil rise
The new limit is set between 32.5 and 33 million barrels a day. A decrease of 700 thousand barrels per day. Iranian Oil Minister: "Exceptional" decision. The price of Brent increases by 6% per share touching $ 49 a barrel. Riyadh cuts public sector wages.
Riyadh (AsiaNews / Agencies) – For the first time in eight years, the OPEC member countries have reached a preliminary agreement to cut production of crude oil, immediately sparking a rise in market prices. The majority of exporting nations gave the green light to the agreement during the meetings, which ended yesterday, in Algeria.
At first the summit seemed destined to end in a stalemate. However, following patient diplomatic work the production cut was agreed upon, easing fears of excess supply on the markets.
Iranian oil minister, Bijan Zanganeh, said that "OPEC has made an exceptional decision."
The price of Brent crude, an international benchmark for oil, increased by almost 6% per share touching $ 49 a barrel. On Asian markets, the gain was only partial. However, businesses in the region have benefited greatly and indices are rising.
The Oil ministers gathered in Algiers reported that the details of the agreement will be finalized in the course of an informal OPEC summit, scheduled for November.
According to early rumors, production will decrease by about 700 thousand barrels per day, although the cuts will not be distributed evenly. This is a sign that Iran - long penalized by international sanctions on the back of its nuclear program - will in fact be allowed to increase production.
In the past the divisions between Tehran and Riyadh - the two great rivals of the Middle East region - have foiled numerous attempts to reach agreement.
Analysts and experts point out that the majority of producing countries, particularly smaller nations, has long pressed for a cut, having recorded a slump in international oil prices which until two years ago hovered around $ 110 a barrel.
The limit set out in the agreement is for a maximum of between 32.5 and 33 million barrels per day for OPEC countries. So far the daily production is at about 33.2 million barrels.
Saudi Arabia is among the nations that have suffered the greatest backlash from falling prices. In recent days and for the first time in history, Riyadh has cut civil servants wages. The executive's goal is to rein in spending and set a ceiling on costs, at a time financial difficulty given the drop in oil revenues.
A royal decree was issued confirming that the ministerial salaries will be reduced by 20%; while there is a 15% cut for housing allowance and car rental provided for the board members of the Shura Council. For lower-ranking officials there will be a suspension of wage increases, as well as limits on overtime and annual leave.
About two-thirds of the Saudi labor force is employed in the public sector. In 2015, wages and salaries accounted for 45% of public expenditure, amounting to a total of $ 128 billion. An expense that has helped to generate a record $ 98 billion budget deficit.
Analysts and experts report that Saudi Arabia is increasingly eroding the tacit understanding between citizens and the leadership, in which the first accepts a job for life - nothing too strenuous - in exchange for the status quo. The budget deficit, however, shows the need for a radical and urgent change.
In April, the Crown Prince Mohammed bin Salman released a reform plan, called "Vision 2030", whose objective is the reduction of public spending and to limit the kingdom’s oil dependence. The project foresees a cut of 40% of expenditure in the public sector within the next decade, while encouraging employment in the private sector.
In December, the government also cut generous subsidies for gasoline and other utilities, but the wave of protest that erupted prompted Prince Mohammed to sack the Minister for Water and electricity six months later.
Meanwhile, citizens are divided between supporters of the reform and those who oppose it; the latter recall the choice of the late King Abdullah in 2011, who in order to stop the Arab Spring taking a foothold in the country allocated 130 billion for the increased wages in the government, promoted subsidized housing and unemployment subsidies.