Oil jumps over 10 percent as OPEC finalizes output cut deal

Oil soared more than 10 percent on Wednesday to over $50 a barrel and its highest in a month as some of the world’s largest producers agreed to curb production for the first time since 2008 in a bid to support prices. The Organization of the Petroleum Exporting Countries, which accounts for a third of global oil supply, agreed to cut production from January by around 1.2 million barrels per day (bpd), or over 3 percent, to 32.5 million bpd. The group’s de facto leader Saudi Arabia said it would take the lion’s share of cuts – reducing output by almost 500,000 bpd to 10.06 million bpd – to get the deal done. Iraq, OPEC’s second largest producer which had previously resisted cuts, providing a hurdle to a deal, agreed to reduce output by 200,000 bpd to 4.351 million bpd. Non-OPEC member Russia, which had long resisted cutting output and pushed its production to new record highs in recent months, agreed to cut output by 300,000 bpd. OPEC will meet with non-OPEC producers on Dec. 9. Sharp gains will be limited as market skepticism lingers about how effective the cuts will be. “It’s going to take time to see who’s 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. U.S. production capabilities may also mute the price reaction, according to Viktor Nossek, director of research at Wisdomtree. “While prices may climb further in the very near term, we expect any gains will be short-lived, with U.S. production likely to ramp up to exploit higher prices.”