Oil holds gains after OPEC output deal

Oil prices on Thursday held on to gains made after OPEC struck a long-sought agreement to reduce production by 1.2 million barrels a day.

According to Tasnim news agency, Brent crude, the global oil benchmark, rose 0.1% to $51.87 a barrel on London’s ICE Futures exchange, having earlier traded above $52. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.1% at $49.38 a barrel.

The agreement struck by representatives of the Organization of the Petroleum Exporting Countries marked the group’s first concerted effort to slash output since 2008 and sent prices surging more than 10% Wednesday.

The cut, representing about 1% of global production, will help to reduce a supply glut that has depressed prices for more than two years. It involves significant reductions by heavyweights including Saudi Arabia, the group’s most powerful member and de facto leader of the cartel.

Under the pact, Saudi Arabia is expected to take the lion’s share of the cuts by slashing production by 486,000 barrels a day. Iraq had a last-minute change of heart by agreeing to curb output by 200,000 barrels a day.

“People are going to be watching closely if the group can now actually live up to their pledges,” says Stuart Ive, a client manager at OM Financial.

The group is expected to reassess the effectiveness of the deal in six months.

The deal is expected to accelerate the rebalance of supply and demand in the market, which will likely shift to a 500,000-barrel deficit in the first half of next year, Bernstein Research said. It added that the deficit could rise to more than 1 million barrels a day by the second half of next year.

Higher prices, however, are likely to cause more US shale producers to increase production.

ME