OPEC has agreed its first limit on oil output since 2008, an OPEC source told Reuters after Saudi Arabia said it was prepared to accept "a big hit" on production and agree to arch-rival Iran freezing output at pre-sanctions levels.
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Brent crude futures jumped 8 percent to more than $50 a barrel on hopes Riyadh had finally reached a compromise with Iran after insisting in recent weeks that Tehran fully participate in any cut.
The source said the Organization of the Petroleum Exporting Countries had on Wednesday agreed a deal in line with an accord the group reached in Algiers in September.
OPEC member Algeria was proposing to set a new production ceiling at 32.5 million barrels per day, down from current levels of 33.6 million.
The source gave no further details as two other OPEC sources said debates were continuing on the size of each member country's cut.
Before the meeting, Saudi Energy Minister Khalid al-Falih said OPEC was indeed focusing on reducing output to a ceiling of 32.5 million bpd and hoped Russia and other non-OPEC producers would contribute a cut of another 0.6 million bpd.
"It will mean that we (Saudi) take a big cut and a big hit from our current production and from our forecast for 2017. So we will not do it unless we make sure that there is consensus and an agreement to meet all of the principles," Falih said.
But he added that even if OPEC failed to reach a deal, the market would slowly recover: "We believe that non-OPEC growth has reversed and also most of the OPEC growth we’ve seen is already behind us," he told reporters.
"If we can’t come to an agreement, then the other scenario of rolling over and waiting for the market to recover on its own is not a bad outcome."
Clashes between Saudi Arabia and Iran have dominated many previous OPEC meetings.
On Tuesday, Iran wrote to OPEC saying it wanted Saudi Arabia to cut production by as much as 1 million bpd, more than Riyadh was willing to offer, OPEC sources who saw the letter told Reuters.
But the tone changed on Wednesday. "I'm optimistic," Iranian Oil Minister Bijan Zanganeh said before the meeting, adding there had been no request for Iran to cut output. He also said Russia was ready to reduce production.
"Moscow have agreed to reduce their production and cut after our decision," Zanganeh said.
The 14-country OPEC, which accounts for a third of global oil production, made a preliminary agreement in Algiers in September to cap output to prop up oil prices, which have halved since mid-2014.
OPEC said it would exempt Iran, Libya and Nigeria from cuts as their output has been crimped by unrest and sanctions.
The September deal was seen as a victory for Iran. Tehran has long argued it wants to raise production to regain market share lost under Western sanctions, when Saudi Arabia increased output.
In recent weeks, Riyadh changed its stance and offered to cut its output by 0.5 million bpd, according to OPEC sources, while suggesting Iran limit production at around 3.8 million bpd - in line with or slightly above the country's current output.
Tehran has sent mixed signals, saying it wanted to produce as much as 4.2 million bpd. Iran's letter to OPEC suggested Saudi Arabia should cut output to 9.5 million bpd.
Sources said that out of additional non-OPEC cuts of 0.6 million bpd, OPEC expected Russia to cut by 0.4 million. A Russian ministry source said the figure was "a bit excessive".
OPEC member Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State.
Iran and Iraq together produce over 8 million bpd, only slightly behind long-time leader Saudi with 10.5 million bpd.
The argument between Iraq and Saudi Arabia mainly focuses on whether Baghdad should use its own output estimates to limit production or rely on lower figures from OPEC's experts.
(Additional reporting by Vladimir Soldatkin, Shadia Nasralla and Lisa Barrington; Writing by Dmitry Zhdannikov; Editing by Dale Hudson)