Trades near US$50 after Opec deal as focus moves to execution

[LONDON] Oil traded near US$50 and crude producers rose after Opec approved its first supply cuts in eight years, with the focus now shifting to how strictly the group will implement the deal.

Futures advanced 0.4 per cent in New York after rising 1.6 per cent earlier. Prices surged 9.3 per cent Wednesday, the largest gain since February amid record volumes.

Opec agreed to reduce collective production to 32.5 million barrels a day, prompting predictions of a possible crude rally to US$60 a barrel from Goldman Sachs Group Inc and Morgan Stanley.

Opec's three largest producers - Saudi Arabia, Iraq and Iran - overcame disagreements to reach Wednesday's landmark deal in a bid to drain record global inventories and bolster the price of crude. After hailing the breakthrough agreement, analysts highlighted the need for Opec to comply.

"Opec's adherence to the agreement will be critical, and its track record is poor - but for the time being oil prices have received a huge support," Jason Gammel, an analyst at Jefferies Group LLC, said in a note.

"The group demonstrated more cohesiveness than at any point" since cutting in 2008, he said.

West Texas Intermediate for January delivery rose as much as 80 US cents to US$50.24 a barrel on the New York Mercantile Exchange and traded up 19 US cents at US$49.63 as of 9.52am London time. The contract jumped US$4.21 to close at US$49.44 on Wednesday. WTI prices gained 5.5 per cent in November.

Brent for February settlement climbed 0.5 per cent to US$52.10 a barrel on the London-based ICE Futures Europe exchange, trading at a US$1.59 premium to WTI for the same month. The January Brent contract surged 8.8 per cent to expire at US$50.47 a barrel on Wednesday.

Saudi Arabia, which raised oil production to a record this year, will reduce output by 486,000 barrels a day to 10.058 million a day, an Opec document shows.

Iraq, the group's second-largest producer, agreed to cut by 210,000 barrels a day from October levels. Iran is the only member allowed to raise production, after claiming special consideration following years of sanctions. Non-member Russia agreed to curtail output by as much as 300,000 barrels a day.

"After yesterday's boost, today everyone will return to calculate the real impact of the cuts on supply and demand," said Olivier Jakob, managing director of Zug, Switzerland-based consultants Petromatrix GmbH.

"Opec's target is to have prices in the US$55-to-US$60 range."

Goldman Sachs forecast an increase in prices to US$55 for WTI and US$56.50 for Brent, saying full compliance with output targets by Opec and non-members could add an extra US$6 a barrel.

If the group sticks to its commitments, oil may trade from US$50 to US$60, Morgan Stanley said.

Oil companies were among the biggest winners on the UK's FTSE 100 Index, with BP Plc rising as much as 4.2 per cent and Royal Dutch Shell Plc adding as much as 3.2 per cent.

Volumes on the two most actively traded crude contracts, Nymex WTI and ICE Brent, both hit records Wednesday, according to preliminary exchange data.

US crude production increased by 9,000 barrels a day to 8.7 million a day last week, the highest since June, according to an Energy Information Administration report Wednesday. Stockpiles dropped by 884,000 barrels to 488.1 million barrels.

Opec's deal pushed energy companies into the top 18 spots on the Standard & Poor's 500 index on Wednesday. California Resources Corp jumped by 44 per cent, while Halliburton Co rose 11 per cent.

BLOOMBERG