Oil prices soar after OPEC announces output agreement

If OPEC agreed a production cut to 32.50 million bpd, crude prices would likely rise to the low $50s a barrel, Goldman said.

Oil prices rose almost 10 percent overnight, after the Organization of the Petroleum Exporting Countries agreed its first output cut in eight years on Wednesday.

According to him, the details of the deal saw Saudi Arabia agree to take on the highest burden of cuts to a 486,000 barrel a day to its output.

The cartel announced Wednesday, on the occasion of its biannual summit in Vienna that it would reduce production by 1.2 million barrels per day (bpd) from the 1 st January, ending a long suspense by a more ambitious agreement than the analysts had expected much.

Prior to the OPEC announcement, the IEA said Russian Federation was expected to add about 200,000 bpd next year.

“The lack of firm output commitments from some non-OPEC producers may not be a major cause of concern, but the threat posed by non-compliance and the potential for USA shale operators to spoil the party should not be ignored”, brokerage PVM Oil Associates said.

OPEC’s first production cuts in eight years are meant to shrink the world’s bloated oil stockpiles back to a normal level, paving the way for prices to rise to more than $60 a barrel. The deal will reduce output by 1.2 million bpd from January 2017 to bpd levels of the prior year, January 2016.

“The OPEC agreement to cut output has improved market sentiment and led to the price surge on Wednesday”.

The price of Brent crude rose 1.3% to $52.51 a barrel, after soaring 8.8% on Wednesday.

United States crude production increased by 9,000 barrels a day to 8.7 million a day last week, the highest since June, according to an Energy Information Administration report Wednesday. The crisis in the energy market has majorly risen from the weakening demand unable to offset the excessive supply. OPEC produces a third of global oil, or around 33.6 million barrels a day.

If the group maintains the agreed cuts, oil could trade in the US$50 to US$60 range, Morgan Stanley said.

It was the first production cut by OPEC in eight years, and the news quickly sent oil prices higher. Rising prices can provide a lift to the troubled economies of oil-dependent nations such as Nigeria and Venezuela, and bolster the fortunes of smaller American energy producers that have been shaken by the weakness.