NEW YORK, Dec. 1 (UPI) — Crude oil prices staged another rally one day after OPEC agreed to a production cut that would erase what it sees for global demand growth if implemented.
Despite early doubts it was possible, members of the Organization of Petroleum Exporting Countries reached an agreement to set a target production of 32.5 million barrels per day “in order to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward.”
A surge in crude production from U.S. shale, Russia and a post-sanctions Iran helped push markets heavily toward the supply side, sending oil prices crashing below the $30 mark in early 2016. If implemented, the OPEC agreement would cut what the 14-member group said it expects for demand next year.
Crude oil prices shot up nearly 10 percent in the wake of the agreement and the enthusiasm spilled over into Thursday trading. The price for Brent crude oil was up 2.9 percent to start the trading day at $53.36 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, was up 2.8 percent to $50.84 per barrel for one of its strongest starts for the year.
Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said the agreement has a number of flaws, ranging from exemptions for once major contributors like Libya and Nigeria to uncertainty about Russia’s role in the agreement. Nevertheless, the agreement helps ease some of the supply-side pressures holding oil prices back.
“The supply and demand is therefore not going to be as tight as OPEC portrays it, but it will still be a meaningful cut of supply that will accelerate the global rebalancing,” he said.
Much of the recent gains in oil prices have come from rhetoric alone. If compliance with the deal is uncertain, however, it could erase some of the optimism supporting the current rally. If oil prices move too high, meanwhile, operators in expensive shale basins in the United States will return to work and contribute to the oversupply.
For the economy as a whole, the U.S. Labor Department said first-time claims for unemployment for the week ending Nov. 26 increased 17,000 and the less volatile four-week moving average gained 500 from the previous estimate. That followed a report earlier in the week that showed the U.S. economy had grown faster than during the second quarter.
