Oil prices extend rally on OPEC deal

Dec 2 Oil prices extended gains early on Friday as producer cartel OPEC and Russian Federation agreed to rein in a global oversupply in crude on Wednesday with analysts now focusing their attention on implementation of the deal. Full compliance with stated output targets by OPEC and non-member producers could add an additional $6 to its price forecast, the bank said.

OPEC suspended Indonesia’s membership on Wednesday since the country, a net importer, could not cut output, Qatar said.

Saudi Arabia will take the lion’s share of cuts by reducing output by nearly 0.5 million bpd to 10.06 million bpd. In October, OPEC supply stood at almost 1.3 million bpd above a year ago. “I don’t think (the market) had priced in how committed OPEC turned out to be at the very last minute to getting something over the line which I think caused a surge in trading volumes”, said Jeffrey Halley, senior market analyst at futures brokerage OANDA.

The Intercontinental Exchange Inc said ICE Brent crude futures hit a daily volume record of 1.96 million contracts on Wednesday while the CME Group said open interest in WTI futures rose to a record 2.1 million contracts on the day of the OPEC agreement.

The price of the commodity has fallen by more than half since mid-2014.

Doubts about the historic deal were widespread in the market.

First of its kind since 2008, “OPEC’s decision will continue to push up the market”, said Carl Larry, Frost & Sullivan.

While oil prices have risen more than $4 a barrel since the announcement, the cost of crude still remains about $2 below a recent high in October.

“The supply and demand is therefore not going to be as tight as OPEC portrays it, but it will still be a meaningful cut of supply that will accelerate the global rebalancing”, he said. “This makes the foundations of a strong price advance unstable, if not risky”.

Following a deal, crude oil prices experienced one of the biggest rallies, as traders hoped that a production cut deal would aid crude oil prices and stabilizes global supplies. That would take its output to January 2016 levels, when prices fell to over 10-year lows amid ballooning oversupply.

OPEC agreed to reduce collective production to 32.5 million barrels per day, Iranian Oil Minister Bijan Namdar Zanganeh said in Vienna on Wednesday.

“This will be the second year in a row in which global oil production fails to grow”, says Espen Erlingsen, Vice President Analysis at Rystad Energy.

US crude rose $1.98, or 4 percent, to $51.42, after rising to a high of $51.72 a barrel, about 20 cents below its 2016 high.