Opec deal to cut oil production surprises market

Members will reduce production to about 33 million barrels a day after Algiers meeting

The Organisation of Petroleum Exporting Countries agreed to cut production to a range of 32.5 million to 33 million barrels a day after the meeting in Algiers. Photograph: iStock

The Organisation of Petroleum Exporting Countries agreed to cut production to a range of 32.5 million to 33 million barrels a day after the meeting in Algiers. Photograph: iStock

 

Oil held gains after the biggest advance 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 were little changed in New York after surging 5.3 per cent on Wednesday.

The Organisation of Petroleum Exporting Countries 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 the meeting in Algiers.

US crude inventories fell for a fourth week, compared with a forecast increase in a Bloomberg survey.

Energy companies led gains in Asia. Oil had swung near $45 a barrel in the lead up to the gathering 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 agreement was unlikely in Algiers, while all but two of 23 analysts surveyed by Bloomberg predicted there would be no deal.

An Opec committee will recommend limits at the formal gathering in November and Iran will be exempt from capping output.

“This shows that Opec can come together and reach an agreement, perhaps clearing the way for a more substantive cut at the November meeting,” said Angus Nicholson, a market analyst in Melbourne at IG.

“To see West Texas back above $50 a barrel, a much more deeper production cut is probably needed and Russia will have to be involved.”

West Texas Intermediate for November delivery was at $47.11 a barrel on the New York Mercantile Exchange, up 6 cents, by 1:40pm Hong Kong time.

The contract rose $2.38 to $47.05 on Wednesday. Total volume traded was about 51 per cent above the 100-day average.

Prices have averaged about $44.90 this quarter. Brent for November settlement, which expires Friday, rose 3 cents to $48.72 a barrel on the London-based ICE Futures Europe exchange.

The contract increased $2.72, or 5.9 per cent, to $48.69 a barrel on Wednesday. The global benchmark crude was at a premium of $1.58 to WTI.

- Bloomberg