Oil prices surge on talk of OPEC deal on production limits

World oil (Other OTC: WOGI - news) prices surged on Wednesday amid reports the OPEC cartel had agreed the basis for production cuts and new limits for each member country.

Brent crude was up almost 6%, nearing $49 per barrel, in the wake of a report by Reuters that a tentative deal had been reached in Algiers between the 13 nations - each having endured more than two years of weak oil revenues.

The news agency cited two OPEC sources as saying the cartel would collectively reduce its oil output to 32.5 million barrels per day from the current 33.24 million.

It would involve each producer agreeing a strict production limit - with those to be worked out at a formal meeting in Vienna in November.

It was also reported that OPEC would approach non-members in the hope of securing cooperation.

OPEC members, including powerhouse Saudi Arabia, have been pumping oil at record levels to secure maximum earnings in the low price environment.

Brent was trading at $115 a barrel in 2014.

The price has been mostly below half that sum since - hitting a low of £28 in January this year - as a consequence of low demand and oversupply.

OPEC production was kept artificially high as Saudi Arabia moved to counter the threat to OPEC's market share from cheaper US shale oil - putting many of those producers out of business in the process.

The low price environment has been good for consumers - lowering petrol prices and many other everyday costs in the process but it has spelt doom for jobs and investment in the wider oil sector.

It is not the first time OPEC has tried to bolster prices.

In April, Saudi Arabia said it would cut production if Iran did the same.

But Iran, readmitted to world oil markets this year after being freed of economic sanctions, aggressively increased output to bolster its own public finances.

Earlier this week, amid the pressure on its own coffers, Saudi Arabia announced massive cuts to its public sector wage bill and cancelled bonuses for employees of state enterprises.

The world's biggest oil exporter's budget deficit is expected to exceed 13% of total economic output this year.