It’s a done deal.
Oil in New York is on track to post its largest gain since 2016 after OPEC producers and allies surprised the market with a larger-than-expected deal to reduce output. West Texas Intermediate crude rallied as much as 5.3 percent on Friday, while its global counterpart Brent jumped 6.1 percent. The group will collectively curb production by 1.2 million barrels a day, higher than the 1 million barrel-a-day scenario that was earlier floated.
“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 as the U.S. issued waivers exempting some nations from adhering to imposed sanctions on Iranian crude. OPEC and allies ended meetings in Vienna Friday with an agreement for the cartel to reduce output by 800,000 barrels a day and allied producers to cut by 400,000 barrels a day. Iran secured an exemption from the deal.
West Texas Intermediate for January delivery climbed $2.32 to $53.81 a barrel at 10:32 a.m. on the New York Mercantile Exchange. Total volume traded was about 87 percent above the 100-day average.
A measure of oil market volatility dropped to the lowest level in three weeks.
Brent for February settlement rallied $3.11 to $63.17 a barrel on London’s ICE Futures Europe exchange. Brent traded at a $9.24 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. Russia’s Energy Minister Alexander Novak said OPEC and allies’ cooperation is “as strong as ever.”
Other oil market stories: Gasoline futures rose 5.2 percent to $1.5078 a gallon. The Buzzard oilfield in the North Sea will restart in mid-December after an outage, the field’s operator Nexen said. 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.
