Oil soars, Brent hits 16-month high after OPEC output deal

Thu Dec 1, 2016 3:05pm EST
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By Devika Krishna Kumar

NEW YORK (Reuters) - Oil prices surged 4 percent on Thursday, with Brent crude at its highest in about 16 months, extending gains after OPEC and Russia agreed to restrict output to reduce the global supply glut more quickly.

The Organization of the Petroleum Exporting Countries agreed on Wednesday to its first oil output reduction since 2008 after the group's leading producer Saudi Arabia accepted "a big hit" and dropped a demand that arch-rival Iran also slash output.

The deal also included OPEC's first coordinated action in 15 years with non-member Russia. Azerbaijan said it was also willing to discuss cuts.

Doubts about the historic deal were widespread in the market.

"It remains to be seen how well they stick to the plan, but if OPEC hadn't come to an agreement the probability is that oil prices would have fallen to $40 a barrel, perhaps even lower," said Simon Flowers, chief analyst at consultancy Wood Mackenzie.

"Brent was trading at about $50 a barrel after the announcement, and we expect it to trade at an average of $55-$60 per barrel in 2017."

Benchmark Brent futures settled 4.1 percent or $2.10 higher at $53.94. Earlier in the session, prices jumped as much as 5.2 percent to $54.53 a barrel, the highest level since July 27, 2015.

U.S. crude ended the session at $51.06, up $1.62 or 3.3 percent on the day. Its session high was $51.80 a barrel, 13 cents below its 2016 high.   Continued...

A gas pump is seen hanging from the ceiling at a petrol station in Seoul June 27, 2011.   REUTERS/Jo Yong-Hak/File Photo