Oil Holds Gains after OPEC Output Deal

“While we acknowledge that OPEC’s record of delivering on production cuts has historically been poor, on a net basis we expect this to tighten crude markets”, said Scott Darling, the head of Asia-Pacific oil and gas research at J.P. Morgan.

Futures advanced 0.4 per cent in NY after rising 1.6 per cent earlier.

OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels.

Russian Federation plans to use its November oil production, which was its highest in nearly 30 years, as its baseline when it cuts output under this week’s deal with OPEC, Deputy Energy Minister Kirill Molodtsov said on Friday. CONSISTENT SAUDI STANCE The agreement marks a return to supply management for OPEC, after two years of a pump-at-will policy to defend market share instead of price.

Oil prices rose 9% in the wake of the news, with the January contract climbing $4.21 at US$49.44 per barrel. WTI prices gained 5.5 per cent in November.

The second front-month Brent crude futures contract, now March 2017, traded a record 783,000 lots of 1,000 barrels each on Wednesday, worth around 39 billion dollars and easily beating a previous record of just over 600,000 reached in September. Iran’s arch-rival Saudi Arabia agreed to the largest production cuts, chopping almost half a million barrels from its current 10.5-million-barrel daily output.

Iraq, the group’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels.

Iranian production will hold at 3.8 million bpd, a decrease from the 3.9 million bpd the Iranians were looking for but up slightly from recent levels.

More significant than that though was the fact that Opec had come together, he said: ‘People were seriously starting to question Opec’s ability to react to what has been going on in the oil market and this reaffirms their ability to act as a group, ‘ he said. “This agreement is out of the sense of responsibility for OPEC member countries, for non-OPEC countries, for the general wellbeing and the health of the world economy”.

“By limiting output from their OPEC members, what they’re hoping to do is limit the supply that’s available so that prices will go back up”, said Teed.

The last time a barrel of oil was above the US$50 mark was on October 24 when it closed at US$50.52.

MSCI’s index of Asian shares ex-Japan rose 0.5 per cent, lifted by stronger-than-expected Chinese manufacturing data, and Japan’s Nikkei 225 rose 1.1 per cent after the yen fell to its lowest since February close to115 per dollar. Tehran had insisted on keeping its production near 4 million barrels a day, which is the amount it was pumping before sanctions were imposed.

Finally there is the issue of the fudge that OPEC has built into the cut itself. California Resources Corp jumped by 44 per cent, while Halliburton Co rose 11 per cent.