NEW YORK (DTN) -- New York Mercantile Exchange oil futures rallied at the start of regular business on Wednesday on news the Organization of the Petroleum Exporting Countries has agreed to cut production at its ongoing summit in Vienna, and in front of U.S. oil inventory data for the seven-day period ended Nov. 25.
Bloomberg quoted a delegate as saying OPEC ministers, who are still meeting, have agreed to cut output by 1.2 million bpd to 32.5 million bpd, with non-OPEC member Russia agreeing to cut production by 200,000 bpd.
Reuters quoted a source saying the agreement is in line with the accord reached in Algiers in late September limiting production to a range of 32.5 to 33.0 million bpd.
OPEC production accounts for between 33% and 35% of the world's supply, so the accord cutting output is meaningful, although analysts said most of the impact on crude values has already been priced in. Others said a cut might still not restore crude oil prices to over $100 bbl seen last in mid-2014 before increased output from the United States and other non-OPEC countries led to market oversupply.
In reaction to a surge in U.S. crude production amid technological advances that pressured demand for crude from OPEC members, OPEC opted in late 2014 to pump as much oil as each member wanted with the goal of knocking high-cost U.S. shale producers out of the market. After more than a year of building global oil supply, crude prices tumbled to below $30 bbl, with nearest delivered WTI futures slumping to a multiyear low of $26.05 bbl in February.
Today's accord was frequently in doubt, with a prior effort in Doha to cut output in April scuttled at the last minute after Saudi Arabia balked at shouldering most of the reduction. In Algiers in late September, OPEC members agreed to a framework to cut output that rallied crude values and led to today's agreement. Once OPEC confirms the production cut, attention will turn to the agreement's details including which members are making the reduction and by how much, and to compliance with the accord, analysts said.
Domestically, the Energy Information Administration's oil supply report for the week-ended Nov. 25 will be released at 10:30 AM ET. Late Tuesday, the American Petroleum Institute reported that U.S. crude stocks fell by 717,000 bbl last week instead of rising as was expected. Distillate supplies added 2.2 million bbl and gasoline stocks climbed by 3.3 million bbl, both more than anticipated.
In early trade, NYMEX January West Texas Intermediate crude oil futures rallied $3.70 or 8.2% to $48.93 bbl, off a one-week high of $49.12. The January Brent crude oil futures contract on the ICE complex soared by $3.97 or 8.6% to $50.35 bbl, off a one-month high of $50.46 with the February contract up $3.97 to $51.29 bbl.
The NYMEX December ULSD futures contract skyrocketed 9.53cts or 6.5% to $1.5580 gallon, off a one-month high of $1.5630 and January futures were up 6.38cts at $1.5721 bbl. December RBOB futures spiked 8.69cts or 6.3% to $1.4640 gallon, a near one-month high with the January contract up 6.08cts to 1.4609 bbl.
The January Brent contract as well as December products contracts will expire at the close of regular trade Wednesday afternoon.
George Orwel can be reached at email@example.com
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