Seoul/Sydney: Oil held its biggest gain in nine months and crude producers rallied after Opec approved the first supply cuts in eight years, with focus now shifting to how strictly it will implement its bid to ease a record glut.
Futures added 0.1% in New York after surging 9.3% Wednesday, the largest gain since February amid record volumes. Opec agreed to reduce collective production to 32.5 million barrels a day, Iranian oil minister Bijan Namdar Zanganeh said in Vienna Wednesday. Goldman Sachs Group Inc. said the pact means oil could rise to $55 a barrel in the first half of next year.
Oil has whipsawed since a production-cut was first proposed in Algiers in September and investors speculated about whether an accord could be struck. The deal, designed to drain record global oil inventories, overcame disagreements between the group’s three largest producers—Saudi Arabia, Iran and Iraq -- and ended a flirtation with free markets that started in 2014. Bernstein said prices may rise to $55 to $60 a barrel in the short-term as a result of the historic accord.
“The market will no longer see a sudden plunge in oil prices," Seo Sang-young, a market strategist at Kiwoom Securities Co., said by phone from Seoul. “The biggest winners from the agreement are US shale producers, who will expand production as prices rally."
West Texas Intermediate for January delivery was at $49.48 a barrel, up 4 cents, on the New York Mercantile Exchange at 11:27 am in Seoul. The contract jumped $4.21 to close at $49.44 a barrel on Wednesday as aggregate trading volume on Nymex rose to a record 2.4 million contracts, according to updated CME data compiled by Bloomberg. Prices gained 5.5% in November.
Brent for February settlement was at $51.91 a barrel on the London-based ICE Futures Europe exchange, up 7 cents. The January contract surged $4.09, or 8.8%, to expire on Wednesday at $50.47 a barrel. The global benchmark traded at a $1.50 premium to WTI.
Saudi Arabia, which raised oil production to a record this year, will reduce output by 486,000 barrels a day to 10.058 million a day, an Opec document shows. Iraq, the group’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels. The country had previously pushed for special consideration, citing the urgency of its offensive against Islamic State.
The accord comes into effect at the start of 2017 and will last six months. The pact also calls for an additional 600,000 barrels a day reduction from non-Opec suppliers. Non-member Russia will cut by as much as 300,000 barrels a day “conditional on its technical abilities," Energy minister Alexander Novak said in Moscow.
Goldman Sachs forecasts a further upside in WTI crude to $55 a barrel and $56.50 a barrel for Brent, and the market may shift to a deficit in the first half next year, analysts including Damien Courvalin wrote in a report. Full compliance with stated output targets by Opec and non-member producers could add an additional $6 to its price forecast, the bank said.
The MSCI AC Asia Pacific Energy Index rose as much as 4.4%, the biggest intraday gain in a month, led by Australia’s Santos Ltd, which climbed 13%. Chinese producer Cnooc Ltd added 7.4% and Japan’s Inpex Corp. surged 11%. Bloomberg