Crude oil extended gains Thursday, with benchmark Brent futures reaching their highest level in more than a year in the wake of OPEC’s first production agreement since 2008.
The February contract for Brent rose $1.83, or 3.6%, to $53.70 a barrel at 4:59 pm ET. The futures price traded above $54 a barrel earlier in the day, ts highest in over a year. The global benchmark is up nearly 15% over the last two days. US West Texas Intermediate (WTI) rose $1.47, or 3%, to $50.91 a barrel.
Oil has been surging since Wednesday’s announcement that the Organization of the Petroleum Exporting Countries (OPEC) has agreed to reduce crude production by 1.2 million barrels per day. Saudi Arabia, the group’s de facto leader, will shoulder more than half of the production cuts, while regional rival Iran will be allowed to increase its output gradually.
The agreement also included coordinated action with Russia, the largest producer outside of OPEC. That marked the cartel’s first coordinated action with Russia in 15 years. On Thursday, Azerbaijan also indicated it was ready to join in on production negotiations.
OPEC, which produces one-third of global oil, had previously vowed not to curb output with participation from other major producers. However, changing economic realities for major Gulf producers created greater urgency to shore up prices, which remain at roughly half of their mid-2014 levels.
According to analysts, the production deal will provide strong support for oil prices in the short term. However, that support is likely to run out over longer term horizons as rising prices draw more supplies from the US shale industry.
The United States has enough spare capacity to once again become the world’s top energy producer. With prices stabilizing in the mid-$50 range, US drilling activity is expected to increase. This could negate OPEC’s recent effort to drain the global supply glut.
On Wall Street, energy stocks surged for a second consecutive day. The S&P 500’s energy index finished 0.3% higher, following a nearly 5% advance the previous session. The broader S&P 500 Index slumped 0.4% on Thursday.
Brent Crude Futures (February 2017)