Crude oil spiked on Wednesday, with US futures prices reaching one-month highs after the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut production for the first time since 2008.
OPEC has agreed to curb output by 1.2 million barrels per day to 32.5 million barrels per day in an effort to boost prices and drain the global oversupply of crude. OPEC countries produced nearly 33.7 million barrels per day in October, a record high.
Saudi Arabia, the group’s largest producer, will reduce its output by 486,000 barrels per day to about 10.06 million, sources said. Iran has reportedly agreed to freeze output at 3.797 million barrels per day. Tehran’s production amounted to 3.69 million barrels per day in October.
OPEC has also suspended Indonesia’s membership from the group. Sources said the suspension does not factor into OPEC’s pact to reduce output by the 1.2 million barrels per day.
The agreement was hatched at an official meeting in Vienna on Wednesday, two months after the producer group first set out on a production freeze. The deal is expected to mobilize support for similar production cuts among non-OPEC members, including Russia. Non-cartel members are expected to reduce output by an additional 600,000 barrels per day in the wake of Wednesday’s deal.
The West Texas Intermediate (WTI) benchmark for US crude futures surged $3.75, or 8.3%, to $48.98 a barrel at 4:59 pm ET. That was the highest level in over a month. Brent crude, the global benchmark, spiked $4.11, or 8.7%, to $51.43 a barrel.
Crude oil fell nearly 4% on Tuesday on reports of growing divisions within the producer group. According to analysts, OPEC’s deal should see oil prices return above $55 a barrel in the short term. A sharp rise in prices is leaving some market participants concerned that US shale will soon flood the market, offsetting OPEC’s efforts.
The US Energy Information Administration (EIA) reported Wednesday that crude inventories declined by 884,000 barrels in the week ended November 25, confounding expectations for a build of more than 600,000 barrels. Gasoline stocks rose by 2.1 million barrels, more than expected.
Inventories of distillate products, which include diesel and heating oil, rose by 5 million barrels, official data showed. Analysts had forecast an increase of 1.3 million barrels.
Energy stocks surged on news of an output deal. The S&P 500’s energy index rose more than 5% on Wednesday, helping to offset sharp declines in other sectors. Gains were evenly distributed among oil and gas companies and energy equipment and service providers.
Despite gains in energy, the S&P 500 Index ended flat on Wednesday.
West Texas Intermediate (WTI) Futures (January 2017)