By Jessica Summers
Oil in New York jumped after OPEC and allied crude exporters surprised traders with a larger-than-expected output reduction.
Futures advanced more than 2 percent in New York and London on Friday. The Organization of Petroleum Exporting Countries and aligned nations will collectively curb production by 1.2 million barrels a day, 20 percent more than previously discussed.
“It’s been a volatile October and November, but this is a nice Christmas present into December,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC. OPEC “stepped up and delivered this year and we should see volatility come in.”
Crude oil has steadily dropped since early October amid concern over growing supplies and the American government’s go-slowly approach by sanctions against Iran. OPEC and allies ended meetings in Vienna on Friday with an agreement for the cartel to reduce output by 800,000 barrels a day and other producers to cut by 400,000 barrels a day. Iran secured an exemption from the deal.
The accord represents “a meaningful cut to to supply,” said Ryan Fitzmaurice, an energy strategist at Rabobank. Still, if sanctions against Iran “get more punitive over time, which I do expect, six months from now we could be in a situation where we actually need more production from OPEC.”
West Texas Intermediate for January delivery climbed $1.12 to settle at $52.61 a barrel on the New York Mercantile Exchange. Total volume traded was about 54 percent above the 100-day average.
A measure of oil market volatility dropped to the lowest since Nov. 19.
Brent for February settlement rallied $1.61 to $61.67 on London’s ICE Futures Europe exchange. Brent traded at a $8.86 premium to WTI for the same month.
Producers will use October production levels as a baseline for cuts and the agreement will be reviewed in April. Kuwait is an exception and will use September output as baseline, according to Iraqi Oil Minister Thamir Ghadhban.
Russia has proposed its share of the 1.2 million barrels a day cut agreement to be equivalent to a 2 percent supply reduction from October levels, according to a delegate. Russian Energy Minister Alexander Novak said cooperation with OPEC is “as strong as ever.”
Meanwhile, Saudi Arabian Energy Minister Khalid Al-Falih said U.S. oil producers are “breathing a sigh of relief” in response to the deal and that low oil prices are “not good for the U.S. economy.”
This article has been written by Jessica Summers.