Oil gains as Opec agrees to first cut in 8 years
OIL HELD near $47 (R636) a barrel after advancing the most since April as Opec agreed to reduce production for the first time in eight years, surprising traders who had expected members to maintain output.
Futures slipped 0.5 percent in New York after surging 5.3 percent on Wednesday. Opec had agreed to cut production to a range of 32.5 million to 33 million barrels a day, Iran’s oil minister Bijan Namdar Zanganeh said after talks in Algiers. US data showed crude inventories in the world’s largest oil-consuming nation declined last week.
Oil had swung near $45 a barrel in the lead-up to the gathering in Algeria as traders speculated over whether Opec would agree on ways to stabilise the market. Saudi Arabia and Iran had signalled before the meeting that an accord on Wednesday was unlikely, while all but two of 23 analysts surveyed by Bloomberg predicted no deal. An Opec committee will recommend members’ production caps in November; Iran will be exempt from cuts.
“The devil is in the detail: they still need to come up with those individual country quotas,” Amrita Sen, the chief oil analyst at consulting firm Energy Aspects in London, said in a Bloomberg interview. However, the deal was “very positive given the fact that this is the first time in eight years that they’ve actually come up with an agreement”.
West Texas Intermediate (WTI) for November delivery was at $46.83 a barrel on the New York Mercantile Exchange, down 22 cents, at 11.09am in London yesterday. The contract rose $2.38 to $47.05 on Wednesday. Total volume traded yesterday was about 61 percent above the 100day average. Prices have averaged about $44.87 this quarter.
Brent for November settlement, which expires today, lost 39c to $48.30 a barrel on the London-based ICE Futures Europe exchange, trading at a $1.47 premium to WTI. The global benchmark crude increased $2.72 to $48.69 on Wednesday.
Sceptical
While Goldman Sachs Group sees the Opec deal adding as much as $10 a barrel to oil prices, the bank remains sceptical about the implementation of quotas, even if they’re ratified when the group next meets on November 30.
History suggests Opec’s ability to execute its agreements is poor, according to Morgan Stanley.
“They haven’t functioned as a cartel since they changed strategy in 2014. This suggests that they may want to go back to that role,” said Thina Saltvedt, an oil analyst for Nordea Bank in Oslo. “They will take back some of their grip.”
Energy producers in Europe surged following the deal. Royal Dutch Shell and BP both rose more than 4.5 percent, driving up the FTSE 350 oil and gas producers index the most since February.