New York: Some of the world's largest oil producers on Wednesday agreed to curb oil output for the first time since 2008 in a last-ditch bid to support prices.
Crude prices, however, are unlikely to skyrocket in reaction to the deal, but will instead take measured steps higher, traders and analysts said.
The Organization of the Petroleum Exporting Countries (OEC) agreed to cut production to 32.5 million barrels per day, Kuwait's oil minister said. The cuts include Iraq reducing output by 200,000 bpd to 4.351 million bpd beginning in January. The country had previously resisted cuts, providing a hurdle to an agreement.
The cut was at the low end of production of a preliminary agreement struck in Algiers in September, and reduces production from a current 33.64 million bpd.
Non-OPEC member Russia has agreed to cut output by 300,000 bpd. OPEC will meet with non-OPEC producers on December 9.
US West Texas Intermediate crude futures for January delivery rose $3.93 to $49.16 a barrel, a 8.7 per cent gain at 12:09pm Eastern [1709 GMT]. The move was the largest one-day gain since February.
Brent crude futures for January delivery rose $3.73 to $50.11 a barrel, a 8.0 per cent gain. That contract expires on Wednesday. Brent futures for February rose 8.8 per cent, or $4.16 to $51.48 a barrel.
"It's going to take time to see whose going to abide by those rules," said Oliver Sloup, director of managed futures at IITrader.com. In the past, not all producers have complied with agreements on supply cuts, Sloup said. As a result, there is skepticism about how closely the production caps will be adhered to.
Kuwait, Venezuela and Algeria have agreed to monitor compliance with the OPEC agreement.
The market will grow in a measured way because traders with short positions have already exited crude futures, according to Dominic Chirichella, senior partner at the Energy Management Institute.
"There's going to be an air of cautiousness and rightfully so," he said. "I think the market is going to move to the upside, but in a metered, cautious manner over a period of time."
The oil rally ricocheted through the market, with stocks and bond prices reaction to the move.
US-listed oil companies including Exxon Mobil Corp, Chevron Corp and Schlumberger saw shares rise as crude prices climbed. Some US producers saw shares spike more than 10 per cent, including Pioneer Natural Resources, Hess Corp and Anadarko Petroleum.
Deferred spreads for US and Brent crude futures also rallied on the OPEC deal.
The WTI Dec 2017 to Dec 2018 spread rallied to as much as negative 39 cents from negative $1.26 a barrel on Tuesday. Meanwhile, the Brent Dec 2017 to Dec 2018 spread rallied to as much as negative $1.04 a barrel from negative $1.87 a barrel on Tuesday.
A weekly government report on US crude oil stockpiles had little sway in the market, which remained focused on the OPEC deal. US crude stockpiles unexpectedly fell 884,000 barrels in the week, compared with forecasts of a 636,000-barrel increase.