Economy

OPEC and allies agree to share oil production increase

OPEC and allies agree to share oil production increase

The production increase will partly undo a 1.2 million barrel cut OPEC agreed on in late 2016 that has helped push up the price of oil.

OPEC meets Russian Federation and other allies on Saturday to clinch a new deal raising oil output, a day after agreeing a production hike within the group itself but confusing the market as to how much more oil it will pump.

Asked to what extent the decision to increase supply had been driven by pressure from Trump, Novak said: "It is obvious that we are not being driven by tweets but base our actions on deep market analysis".

The possible move, which would bring the OPEC and non-OPEC countries closer, was announced following an agreement to raise crude oil output by a million barrels per day.

Brent crude settled up US$2.50, or 3.4 per cent, to US$75.55 a barrel. West Texas Intermediate crude jumped 4.6 percent to $68.58 a barrel, the biggest gain in six months. The S&P 500 gained 5.12 points, or 0.19 per cent, to 2,754.88, and the Nasdaq Composite dropped 20.14 points, or 0.26 per cent, to 7,692.82.

In post-settlement trading, both United States and Brent crude continued to strengthen.

Brent crude added $2.50 to finish at $75.55 a barrel, while the USA benchmark West Texas Intermediate gained $3.04 at $68.58 per barrel.

U.S. crude's discount to Brent narrowed by about 15 per cent to US$6.36 in the session, making it the smallest since May 11.

More news: Trump asks GOP to table immigration reform until after midterm elections

Ultimately, Saudi Arabia persuaded Iran to cooperate with the plan to cut output, following calls from major consumers to curb rising fuel costs.

The OPEC strategy now has stockpiles nearing the five-year average oil storage levels of the Organisation for Economic Co-operation and Development (OECD) countries.

"You think about 1 million bpd coming back online.it's not going to happen instantaneously, it's going to take time", said Brian LeRose, the senior technical analyst at ICAP.

Importantly, the 100 per cent compliance target is for the group as a whole, not for individual members. This should reduce recent supply restrictions in the face of growing global consumption levels.

"Yields.(are) still lower from a couple of weeks ago and that's because of the uncertainty on the US trade situation with China", said Lou Brien, market strategist at DRW Trading in Chicago.

Questions remain, however, over the ability of some OPEC nations - Iran and Venezuela in particular - to increase production as they struggle with domestic turmoil and sanctions.

Further to OPEC being blindsided by the rise of shale oil, the global "Easy-Money" environment perpetuated by central banks - namely the US Fed's Quantitative Easing (QE) program - has also played a key role in the Shale supply-boom.

A large decline in inventories at the storage hub of Cushing, Oklahoma helped trigger the rally, traders said. "And that implies there will be indirectly a reallocation", Falih said.


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