Oil prices soared Friday as a divided OPEC came together and agreed to modest production increases of 1 million barrels a day.
But the amount of oil coming onto the market is unlikely to exceed 700,000 barrels a day because several OPEC members, such as Venezuela, Libya and Angola, are struggling with internal conflicts, while Iran’s exports will be limited by U.S. sanctions, analysts said.
At the same time, global oil inventories have fallen below average levels for the first time in four years, and the International Energy Agency projects worldwide oil demand to grow this year by 1.4 million barrels a day.
U.S. oil prices jumped by nearly 5 percent on the news of the OPEC deal, climbing more than $3 a barrel to settle at than $68.58 per barrel in New York. It was the highest close since May, when Saudi Arabia and Russia first indicated their desire to increase oil volumes.
The agreement reached in Vienna modifies the 2016 accord between OPEC and other major producers to cut output by 1.8 million barrels a day in an effort to drain a global oil glut and lift prices. The agreement went into effect in the beginning of 2017 and was extended twice as inventories stayed high and prices low.
But those trajectories changed in recent months as a strong global economy drove demand higher while oil production collapsed in Venezuela, riven by a political and economic crisis, coupled with US sanctions on Iran.
OPEC President Suhail Al Mazrouei, the energy minister of the United Arab Emirates, said the deal reached Friday conforms with the 2016 agreement, which had the aim of bringing global supply and demand in balance.
“OPEC is not targeting a price, and we will never target a price,” he said. “What we are targeting is market stability.”
OPEC said its next step is to create a formal, broader organization with Russia and other non-OPEC nations, exerting greater control over the global oil supply. Together, these roughly 25 countries produce more than half the world’s oil. A formal charter could be in place by the end of the year, OPEC said.
With Russia and OPEC working together, analysts said, there’s a greater chance of achieving the kind of price stability that will keep the industry healthy, while avoiding the extreme boom-and-bust cycles that have devastated the oil and gas sector in the past, most recently during the downturn that stretched from 2014 to 2016.