Brent oil capped its biggest weekly gain since 2009 after OPEC approved its first supply cut in eight years, with attention shifting to compliance with the deal and how other producers would react to a price rally.
Futures closed at the highest in more than a year in London and New York.
OPEC’s three largest producers — Saudi Arabia, Iraq and Iran — overcame discord to reach Wednesday’s pact to reduce the group’s output by 1.2 million barrels a day, while Russia pledged a cut of as much as 300,000.
Photo: AFP
The accord ended the group’s pump-at-will policy started in 2014 aimed at protecting market share and driving out high-cost competitors such as shale.
“Everyone wins, but US shale producers are the big winners from the OPEC deal,” Bank of America head of commodity markets research Francisco Blanch said by telephone. “The agreement made sense purely on economic logic. OPEC wanted to end the price war.”
OPEC set a collective output target at the lower end of the range outlined two months ago in Algiers, Algeria, boosting prices and prompting predictions of a possible advance to US$60 a barrel from Goldman Sachs Group Inc and Morgan Stanley.
Some analysts said that the rally might encourage higher output from producers outside the group, including in the US.
The last time OPEC set a quota, members exceeded it for 20 of the 24 months before the cap was scrapped at the end of last year.
Brent for February settlement climbed US$0.52, or 1 percent, to US$54.46 a barrel on the London-based ICE Futures Europe exchange. It is the highest close since July 24 last year. The contract is up 13 percent this week.
The January contract expired on Wednesday.
Front-month futures rose 15 percent this week, the biggest gain since January 2009.
West Texas Intermediate for January delivery rose US$0.62, or 1.2 percent, to US$51.68 a barrel on the New York Mercantile Exchange.
It is the highest settlement since July 14 last year. Prices rose 12 percent this week, the most since February 2011.
Total volume traded was 24 percent higher than the 100-day average at 3:10pm on Friday.
Oil market volatility, as measured by the Chicago Board Options Exchange Crude Oil Volatility Index, on Friday dropped for a third day as the OPEC agreement was absorbed. The index has slipped 33 percent over the three-day period, the most in nine years.
Russia’s output cut should be spread proportionally among the country’s producers, who have said they support the move, Russian Energy Minister Alexander Novak told reporters on Thursday.
State-controlled Rosneft PJSC, the country’s largest producer, is likely to bear most of the burden, according to Renaissance Capital.
Russia might announce cuts for each company late next week, Lukoil PJSC vice president for strategic development Leonid Fedun said.
Oil market news:
‧ Russia and Qatar are discussing the best location for talks between OPEC and non-OPEC producers, with options including Vienna, Doha and Moscow, United Arab Emirates Oil Minister Suhail Mazrouei said.
‧ Kazakhstan is to decide on cutting output after OPEC, non-OPEC talks, the country’s Energy Ministry press service said in a statement.
‧ Rigs targeting crude in the US rose by three to 477 this week, the highest level since January, Baker Hughes Inc said on its Web site on Friday.
‧ Harold Hamm, the billionaire oilman and energy adviser to US president-elect Donald Trump, said foreign ownership of US refineries is an issue the new administration needs to be concerned about.
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