Crude prices rally above US$51 on OPEC deal

Oil is headed for its biggest weekly gain in 15 months after OPEC approved its first supply cut in eight years, with attention now shifting to the deal’s implementation and how producers outside the group will react to any price rally.

Brent and WTI futures had jumped more than 10 percent since Wednesday’s agreement by OPEC members and Russian Federation to reduce crude production by a combined 1.5 million barrels per day. Prices surged 9.3% on Wednesday, the largest gain since February amid record volumes.

When OPEC said on Wednesday it agreed to cut the cartel’s total production to 32.5 million bpd, effective January, it hinged the deal on persuading non-OPEC producers to cut around 600,000 bpd.

The bulk of the reduction approved on Wednesday will be shouldered by Saudi Arabia, which agreed to a 486,000-barrel-a-day cut.

Azerbaijan supports any decision towards stabilizing oil prices in the world market, Azeri media report today.

OPEC hadn’t reached an agreement on oil production since 2008.

The agreement marks the first time in eight years OPEC has chose to cut oil production by more than a million barrels a day.

Despite Friday’s falls, traders and analysts said the deal was significant, and that it would at least reduce oversupply.

USA crude oil was up $1.29 or 2.61% to $50.72 a barrel at 10.00 ET, a level not seen since October 25.

OPEC’s decision to reduce production has lowered expectations that the national average will fall that low this year, but gas was available for less than $2 a gallon in several states.

Opec’s deal achieves a broad consensus with Libya, Nigeria and Indonesia exempt, a modest growth allowance for Iran based on secondary sources, and a 4.6-percent cut across other producers, according to Goldman.

But Russia will use its November-December output levels, Energy Minister Alexander Novak told reporters on Thursday. It further stated that a stable increase in oil prices which is one of the rewards that the deal will produce would most likely contribute positively to the stimulation of the economies of member countries including Nigeria that are now undergoing challenges.

“OPEC has agreed to a historic production cut”.

Despite the rises, analysts noted that prices had only returned to levels seen in September and October – when plans for a cut were first announced – and raised doubts about the deal.