BackOil extends advance as Opec agrees first output cut in 8 years
The Opec agreed to cut production to a range of 32.5 million to 33 million barrels a day, said Iran's oil minister Bijan Namdar Zanganeh
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Hong Kong: Oil extended gains after the biggest advance since April as Organization of the Petroleum Exporting Countries (Opec) agreed to reduce production for the first time in eight years, surprising traders who had expected members to maintain output.
Futures climbed as much as 0.9% in New York after surging 5.3% on Wednesday. The Opec agreed to cut production to a range of 32.5 million to 33 million barrels a day, Iran’s oil minister Bijan Namdar Zanganeh said after the meeting in Algiers. US crude inventories fell for a fourth week, compared with a forecast increase in a Bloomberg survey. Energy companies led gains in Asia.
Oil had swung near $45 a barrel in the lead up to the gathering as traders speculated over whether Opec would agree on ways to stabilize the market. Saudi Arabia and Iran had signalled before the meeting that an agreement was unlikely in Algiers, while all but two of 23 analysts surveyed by Bloomberg predicted there would be no deal. An Opec committee will recommend limits at the formal gathering in November and Iran will be exempt from capping output.
“This shows that Opec can come together and reach an agreement, perhaps clearing the way for a more substantive cut at the November meeting," said Angus Nicholson, a market analyst in Melbourne at IG Ltd. “To see West Texas back above $50 a barrel, a much more deeper production cut is probably needed and Russia will have to be involved."
West Texas Intermediate for November delivery rose as much as 42 cents to $47.47 a barrel on the New York Mercantile Exchange and was at $47.14 at 10:13 am Hong Kong time. The contract rose $2.38 to $47.05 on Wednesday. Total volume traded was about 57% above the 100-day average. Prices have averaged about $44.90 this quarter.
Opec deal
Brent for November settlement, which expires Friday, fell as much as 9 cents to $48.60 a barrel on the London-based ICE Futures Europe exchange. The contract increased $2.72, or 5.9%, to $48.69 a barrel on Wednesday. The global benchmark crude was at a premium of $1.51 to WTI.
While Goldman Sachs Group Inc. sees the Opec deal adding as much as $10 a barrel to oil prices, the bank remains skeptical on the implementation of the proposed quotas if they’re ratified in November. The focus now turns to the execution of the agreement and history suggests the group’s ability to do this is poor, according to Morgan Stanley.
The MSCI AC Asia Pacific Energy Index rose as much as 4.2% compared with a 0.7% advance by the broader regional gauge. Australia’s Santos Ltd climbed as much as 9.7%, the most since April, while Japan’s Inpex Corp. added as much as 8%. Cnooc Ltd and SK Innovation Co. both gained more than 5%.
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