Oil price plunges 4%% as OPEC agrees to extend production cuts

The price of Brent crude dropped by over 4% to $51.32 a barrel after an announcement that oil-producing nations have agreed to continue production cuts.

The 13 (Berlin: 32635652.BE - news) members of the Organisation of the Petroleum Exporting Countries (OPEC) held a meeting in Vienna on Thursday, their first since an agreement was reached on limiting their output of the commodity late last year.

OPEC accounts for a third of global oil production and includes many of the world's largest oil exporters such as Saudi Arabia and Qatar.

It made the decision to cut production in the hopes of tackling a major global glut which had pushed the price of oil down to less than half of its mid-2014 level.

The plunging value of the commodity had been causing problems for many countries such as Saudi Arabia and Russia, which rely on oil as one of their main sources of income.

The deal agreed last year saw the group's member countries reduce production by 1.2 million barrels a day to 32.5 million barrels, effective from January, and it has succeeded in pushing prices back above the $50 benchmark.

Russia, which is not part of OPEC, also agreed to reduce its output.

But the news that the cuts will be extending for nine months past the end of June has sent the price of oil tumbling.

The cost of a barrel of Brent crude, which is a global benchmark for oil value, plunged by almost 5% after the announcement.

Russ Mould, investment director at AJ Bell, said the drop is partly due to the fact that some had hoped to see production cut even further.

"This is partly because crude had already run higher in anticipation of the deal, partly because some analysts had been hoping for a deeper cut and partly because US shale oil production is surging again, encouraged by crude's advance from its lows under $30 in early 2016," he said.

The price of Brent crude has since recovered slightly but is still trading over 3.5% down.