OPEC struck a long-sought agreement to reduce production by 1.2 million barrels a day. Both U.S. and international crude futures are trading north of $50 a barrel. West Texas Intermediate, the U.S. benchmark, is up $1.27, or 2.57%, at $50.71. Brent crude, the global benchmark, is up $1.41, or 2.72%, at $53.25 a barrel.
The agreement struck by representatives of the Organization of the Petroleum Exporting Countries marked the group’s first concerted effort to slash output since 2008 and sent U.S. crude prices up more than 9% Wednesday.
The deal is expected to accelerate the rebalance of supply and demand in the market, which will likely shift to a 500,000-barrel deficit in the first half of next year, Bernstein Research said. It added that the deficit could rise to more than 1 million barrels a day by the second half of next year.
Higher prices, however, are likely to cause more U.S. shale producers to increase production.
The latest production data from the U.S. Energy Information Administration showed U.S. production increased by 9,000 barrels a day to 8.7 million barrels for the week ended Nov. 25.
OPEC is banking on a reduction from producers outside the bloc of 600,000 barrels a day. Russia has agreed to trim output by as much as 300,000 a day, though Energy Minister Alexander Novak said the cut will be gradual. While Oman committed to a 10 percent reduction, Mexico rebuffed an assertion by Nigeria that it would also play its part. The remainder of the non-OPEC cut is as yet unaccounted for.
“One of the key things, and potentially the deal breaker, will be what happens if Nigeria or Libya recovers some of their production,” said Spencer Welch, a director at consultants IHS Energy. “Will OPEC stick to the 32.5 million maximum, and if so, who will provide the extra cuts?”
The bulk of the reduction approved on Wednesday will be shouldered by Saudi Arabia, which agreed to a 486,000-barrel-a-day cut.
SOURCES- Bloomberg, Wall Street Journal, Wikipedia
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