OPEC agrees to cut production to boost oil prices

Now comes the hard part.

Falih also said OPEC was focusing on reducing output to a ceiling of 32.5 million barrels per day, or cutting by more than 1 million bpd, and hoped Russian Federation and other non-OPEC members would contribute a cut of another 0.6 million bpd.

Oil prices fell on Tuesday on market jitters over whether producer cartel OPEC will be able to hammer out a meaningful output cut during a meeting on Wednesday aimed at reining in a global supply overhang and propping up prices. News of the deal sent oil futures higher Wednesday morning. This has caused the oil price to yo-yo between $40 and $52 a barrel since the spring.

The price of oil has soared on world markets after OPEC nations agreed to their first production cut in eight years.

But OPEC now has a hard needle to thread.

In New York, West Texas Intermediate light sweet crude for January delivery jumped US$4.21, or 9.3 per cent, to close at US$49.44 a barrel.

WALL STREET: U.S. stocks finished mostly lower Wednesday as gains in blue-chip energy companies and banks were not enough to make up for losses in the broader market. But they are divided over the longer-term path for prices.

“Now that the deal is official, there is potential for prices to move even higher, based on the rate that oil prices climb”, said Mark Jenkins, spokesman for AAA, in a statement.

“We have agreed to a waiver from a cut to Iran in recognition of the impact of the sanctions on their economy and their industry”, said Khalid Al-Falih, the Saudi oil minister.

But JPMorgan sees prices rising slowly but steadily quarter after quarter.

Libya and Nigeria were granted exemptions because they have experienced significant supply outages due to internal conflicts.

The move will not affect OPEC’s overall reduction as Indonesia’s share of cuts will be redistributed among other members. “The war on Yemen is continuing, and they have the Aramco IPO, and higher prices are conceptually a better platform for all of those things – the Yemen war, Vision 2030 and the IPO”, said Cohen. “For the moment, Opec’s task was to take supportive action until the April oil contract, which would find support from higher oil demand on the back of the United States summer driving season”. Iran’s quota was set at 3.797 million barrels a day, down 90,000 barrels from October.

Prior to OPEC’s announcement, the IEA said it also expects Brazil , Canada and Kazakhstan to pump more in 2017.

Research firm IHS Inc. estimates that if crude rises to $55, US production will instead grow by about 500,000 barrels a day – offsetting almost half of OPEC’s stated cut. “We have penciled in GDP growth of 1.3% in 2017 and 1.5% in 2018, compared with around 1.0% this year”.