12 pc spike in oil prices after OPEC deal to cut production

OPEC gave up assigning quotas in part because members have ignored them in their quest for petrodollars.

The Organization of the Petroleum Exporting Countries at a meeting in Vienna on Wednesday agreed on specific targets to enact a preliminary deal struck in September created to ease a global crude supply glut and boost prices. Overnight WTI crude oil climbed 9.6% to $US49.57 a barrel and Brent crude oil increased 8.6% to $50.36.

The price of US crude lost 8 cents to $49.36 a barrel in NY.

The market was boosted by the release of OPEC deal details. Scott Darling, J.P. Morgan.

He said he was very happy as this was the sort of deal they were looking for, which would bring stability to the market. Iraq, the group’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels. Iraq had a last-minute change of heart by agreeing to curb output by 200,000 barrels a day.

Tehran has been rushing to rebuild its oil-export capacity since its landmark nuclear deal with world powers led to a lifting of worldwide sanctions against Iran.

“People are going to be watching closely if the group can now actually live up to their pledges”, says Stuart Ive, a client manager at OM Financial. “In addition, the deal is for six months, and there is no guarantee OPEC members will reach a consensus to extend it”.

“The market’s rising strongly because there was a lot of skepticism about OPEC’s ability to come to an agreement”, said Mark Watkins, the Park City, Utah-based regional investment manager for the Private Client Group at US Bank, which oversees $US136 billion in assets.

Richard Hale, director of energy sector consultancy Hale & Twomey, said New Zealand businesses which rely on transport fuel would be concerned by Opec’s move.

A number of other major oil-producing nations such as the USA and Russian Federation are not Opec members.

Saudi Arabia’s Energy, Industry and Minister Khalid al-Falih said Tehran would be allowed to freeze its oil production at levels before worldwide sanctions were imposed against Iran over its nuclear program.

Oil prices dropped to about $26 a barrel earlier this year after it had reached $115 some 18 months earlier.

A production cut could have a lasting impact on consumers as oil price increases feed into the cost of auto fuel, heating and electricity.

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.

“Russia has already publicly indicated it is ready to cut production in the first half of 2017 by up to 300 thousand barrels of oil per day (mbpd), although it is not completely clear from which level production will be cut”, the agency said.