Producers like Venezuela and Nigeria face tremendous economic pain as oil prices remain low.
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Both futures contracts spiked more than 5% on Wednesday.
Oil had traded around $45/bbl in the lead-up to the gathering in Algeria as traders speculated over whether OPEC would agree on ways to stabilize the market.
The cartel’s richer members, particularly the Gulf states, have preferred to battle it out with non-OPEC producers such as the United States for global market share by keeping production high.
And, if they get the deal done, history shows that the price cuts have indeed worked.
While Goldman Sachs Group Inc. sees the deal adding as much as $10/bbl to oil prices, the bank remains skeptical about the implementation of quotas, even if they’re ratified when the group next meets on November 30.
“You can’t believe they’re going to come through on this one either”.
The International Energy Agency said this month that supply will outstrip demand well into next year.
USA inventories, however, still remain at historically high levels for this time of year, according to the EIA.
Separately, S&P Global Market Intelligence said today that Marathon Oil could thrive despite a “mediocre macro environment”, Barron’s reports, citing an analyst note.
Oil majors led the charge as the London market burst back through the 6,900 mark following investor cheer over an output-limiting deal struck by the Opec oil cartel. But it won’t rein in some of the other top crude exporters. Iran has argued it should be exempt from such limits as its production recovers after the lifting of European Union sanctions earlier this year.
The pan-European STOXX 600 ended flat after rising as much as 1.1% earlier in the session, dragged back down by weakness in drugmakers and travel stocks.
“This deal falls well short of the earlier hopes of a coordinated plan with major non-OPEC producers, especially Russia”, Jessop said.
“It is still not clear whether Russian Federation will join the efforts”. Discussion of how this will be divvied up among countries was postponed until the November 30 meeting in Vienna, which will test just how serious OPEC is about the deal. At the most, the possible deal would shave off 700,000 barrels a day – some 2 percent of overall production.
Stocks rallied in Asia and Europe after Opec’s surprise announcement of a deal to cut crude output spurred a surge in oil late Wednesday. “They are risking credibility by being this open, so presumably they must be confident they can deliver”. “They’re driving down costs all the way through the production chain”, said John Kilduff of Again Capital. “But those that need higher prices may still have to sit and wait”.
That policy, and internal OPEC squabbles, raised questions about the relevance of the cartel which produces about 40 percent of global output.
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There have been a few short-lived oil price rallies during the prolonged commodity price rout and many producers have taken advantage by hedging their production – buying the option to sell their oil in the future at a higher price – despite wariness about a longer recovery.
