Oil futures moved sharply higher in today’s trading, with the contract for January delivery on the New York Mercantile Exchange rising to its highest level since October 28th, with a move to $49.90 for a high. Settlement was near the high of the session at $49.44/barrel, a gain of 9.3%.
Today’s surge in oil futures came as some of the world’s largest producers agreed to curb output for the first time since 2008. According to a report from Reuters, the Organization of the Petroleum Exporting Countries agreed to cut production to 32.5 million barrels per day.
The cuts include Iraq reducing output by 200,000 barrels per day to 4.351 million barrels per day beginning in January. The country had previously resisted cuts, providing a hurdle to an agreement. Non-OPEC member Russia has agreed to cut output by 300,000 barrels per day. OPEC will meet with non-OPEC producers on Dec. 9, according to Reuters.
Also in today’s news, the latest Energy Information Administration (EIA) data showed a draw of 0.884 million barrels compared with a consensus forecast for a build of 0.636 million barrels. The API data released on Tuesday also reported a draw and markets were therefore braced for a decline in EIA inventories.
As a result of today’s sharp move higher in oil futures, the January contract broke above resistance at the high established in last week’s trading at $49.20. Sustaining the break above this level over the near term would leave the next target at former support near the $50.30 level, followed by the October highs at the $52.74 level.
Given the extent of today’s move to the upside and resulting overbought condition, a period of correction or consolidation could develop over the near term. Should $49.20 give way on a pullback, the next level of support is at the mid-point of today’s price action, near the $47.35 level. Holding at or above this level would keep the contract well-positioned to resume the advance over the near term.