Oil rises as much as 5.8% as OPEC+ is said to agree cuts

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LONDON (Dec 7): Oil surged by as much as 5.8% in London as OPEC was said to agree on a larger-than-expected deal with its allies to reduce output.

The producer alliance will collectively curb production by 1.2 million barrels a day, delegates from the Organization of Petroleum Exporting Countries said after concluding a second day of meetings in Vienna on Friday. That was more than cuts of 1 million barrels a day that had been discussed earlier. Russia also agreed to join, according to one delegate.

The breakthrough occurred after OPEC failed to reach an agreement during meetings on Thursday and after uncertainty on Friday morning over agreeing to a deal at all.

“Finally they got one, nobody really believed it after the morning hours,” Commerzbank AG analyst Carsten Fritsch said by phone. “It’s mainly due to the lowered expectations before the deal.”

Oil had plunged by more than 30% earlier this month from a four-year high in October, as concern over excess supply was fueled by sanctions waivers given for some buyers of Iranian oil and growing U.S. crude inventories and production. Friday morning saw meetings between Russia’s energy minister and his Iranian and Saudi counterparts, as producers sought to hammer out a deal to reduce output.

Brent for February settlement added as much as US$3.48 to US$63.54 a barrel on London’s ICE Futures Europe exchange, after falling 2.4% on Thursday. It traded at US$63.23 a barrel by 9:52 a.m. New York time.

West Texas Intermediate for January delivery gained US$2.36 to US$53.85 a barrel on the New York Mercantile Exchange. The U.S. benchmark traded at a US$9.13 discount to Brent. Total WTI volumes traded were about double above the 100-day average.

OPEC concluded its meeting with an accord to remove 1.2 million barrels a day of oil supply from the market, with its allies, including Russia taking a 400,000 barrel-a-day share, delegates said, asking not to be named because the information wasn’t public. Iran, which has sharply reduced oil shipments amid U.S. sanctions, was granted an exemption from curbing its output, according to Oil Minister Bijan Namdar Zanganeh.

After a meeting on Thursday, Saudi Energy Minister Khalid Al-Falih had talked down the potential for a deal, saying he wasn’t confident one could be reached.

“This cut size is a positive surprise versus yesterday,” said Giovanni Staunovo, a commodities analyst at UBS Group AG. “It will be interesting to see if there’s a meeting when they review in April and how that will work, but for now, this is bullish.”

Other oil market stories:  

The Buzzard oilfield in the North Sea will restart in mid-December after an outage, the field’s operator Nexen said in response to emailed questions. 

The weekly Commitments of Traders Report from the Commodity Futures Trading Commission will be delayed until Monday, following a day of mourning earlier this week for former U.S. President George H.W. Bush.

Futures add as much as 5.8%.