Crude oil futures posted vaulted to more than a 9% gain on Wednesday after news that OPEC reached an agreement to cut production for the first time in eight years, according to Bloomberg MarketWatch.
At the Vienna summit conference, the 14-member OPEC cartel agreed to cut daily production by 1.2 million barrels a day to a ceiling of 32.5 million barrels. The reductions will take effect at the beginning of 2017. OPEC’s last production cut was implemented in January 2009.
The agreement was also accepted by non-OPEC oil producers who have also agreed to cut back their production by 600,000 barrels a day. Russia will be taking a cut of nearly 300,000 barrels a day.
“This will have a swift and significant material impact on the global market balance,” said Matthew Smith, director of commodity research at ClipperData, when referring to implementation of the deal.
On the New York Mercantile Exchange, January West Texas Intermediate crude rose $4.21, or 9.3%, to settle at $49.44 a barrel. The settlement was the highest since October 27, with prices scoring their best one-day percentage gain since February. Oil prices gained about 5.5% for the month, based on the front month contract.
January Brent crude, the global benchmark, jumped by $4.09, or 8.8%, to end trading at $50.47 a barrel on London’s ICE Futures Exchange. For the month, prices were up about 4.5% for the January contract which expired at the day’s settlement.
February Brent crude tacked on $4.52, or 9.6%, to settle at $51.84 a barrel.
Libya and Nigeria, which have been trying to ramp up production in the wake of disruptions to their oil flows from internal conflicts, are exempt from the deal, while Iran will be allowed to raise its output to the pre-sanction of 3.975 million barrels a day.
After rejoining OPEC less than a year ago following its 2009 suspension, Indonesia asked OPEC to suspend its membership again due to difficulty participating in the deal because it is a net importer of oil.
“Indonesia is irrelevant to OPEC and really should not have been admitted back in,” said James Williams, energy economist at WTRG Economics. “It used to be a net exporter of crude oil and while it produces [an estimated] 722,000 barrels per day of oil and does export some, it is a net importer of petroleum.”
Saudi Arabia will take a 486,000 barrels-per-day cut—the largest in the group.
OPEC will establish a monitoring committee comprised of oil ministers that will be assisted by the OPEC Secretariat, an executive unit of OPEC that helps with operations.
The Energy Information Administration reported that domestic crude supplies for the week ending November 25 fell by 900,000 barrels. Late Tuesday, the American Petroleum Institute reported a decline of 717,000 barrels. Analysts polled by S&P Global Platts expected a fall of 250,000 barrels.
On the New York Mercantile Exchange, January natural gas rose 3.7 cents, or 1.1%, to end trading at $3.352 per million British thermal units. Dow Jones data revealed prices were up by about 10.8% for the month.