Oil Climbs Most in Five Months as OPEC Agrees to Deal Outlines

  • Members to cut output to as low as 32.5 million barrels a day
  • U.S. gasoline supply rises, crude stockpiles decline: EIA

Oil Surges as OPEC Said to Agree on Oil Output Cut

Oil increased the most since April after OPEC agreed to limit production for the first time in eight years at an informal meeting in Algiers.

Futures advanced 5.3 percent in New York. The group agreed to reduce output to a range of 32.5 to 33 million barrels per day, said Iran’s Oil Minister Bijan Namdar Zanganeh. Saudi Arabia and Iran wrong-footed traders who expected a continuation of the pump-at-will policy the group adopted in 2014. Prices fell earlier as a government report showed a U.S. gasoline supply gain.

“The cut is clearly bullish,” Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by phone. “The number of actual barrels that will be taken off the market is unclear. What’s much more important is that the Saudis appear to be returning to a period of market management.”

The deal will reverberate beyond the Organization of Petroleum Exporting Countries. The agreement will brighten the prospects for the energy industry, from giants like Exxon Mobil Corp. to small U.S. shale firms, and boost the economies of oil-rich countries such as Russia and Saudi Arabia. OPEC’s next formal summit is on Nov. 30 in Vienna.

West Texas Intermediate for November delivery climbed $2.38 to settle at $47.05 a barrel on the New York Mercantile Exchange. It’s the highest close since Sept. 8. Total volume traded was 77 percent above the 100-day average at 4:54 p.m.

OPEC Detente

Brent for November settlement rose $2.72, or 5.9 percent, to $48.69 a barrel on the London-based ICE Futures Europe exchange. The global benchmark closed at a $1.64 premium to WTI.

Shares of oil producers rallied on the prospect of an OPEC agreement. Exxon, the world’s largest oil company by market value, gained 4.4 percent. The S&P Oil & Gas Exploration and Production Select Industry index climbed 6.3 percent, the most since April.

The agreement also signals a new phase in Saudi-Iran relations. The two countries have clashed on oil policy since 2014 and are backing opposite sides in civil wars in Syria and Yemen. The deal became possible after Riyadh and Tehran, with the mediation of Russia, Algeria and Qatar, agreed at the last minute on their respective production limits.

‘Show of Cooperation’

"The market is rewarding the show of cooperation," said John Kilduff, a partner at Again Capital LLC, a New York hedge fund focused on energy. "Their acts haven’t matched their words so far but the market is giving them the benefit of the doubt. The desperation of Saudi Arabia to reach an agreement is readily apparent and increases the chances of success." 

U.S. gasoline stockpiles climbed 2.03 million barrels last week, the biggest increase since May, according to the Energy Information Administration. The gain came a day after the industry-funded American Petroleum Institute reported that inventories of the fuel tumbled 3.7 million barrels.

U.S. crude supplies fell by 1.88 million barrels to 502.7 million in the week ended Sept. 23, the lowest since February, according to EIA data. Stockpiles remain at the highest seasonal level in more than 20 years. Imports of crude slipped 5.7 percent to 7.84 million barrels a day last week. Production slipped 0.2 percent.

“There’s a little light at the end of the tunnel,” said Matt Sallee, who helps manage $15 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas. “Inventories should keep falling as long as production continues to fall, demand holds up and imports remain around the 8 million barrels a day.”

Refineries cut operating rates by 1.9 percentage points to 90.1 percent of capacity, the lowest level since May. Plants usually cut back on operations in September and October after the peak driving season comes to an end.

— With assistance by Grant Smith, Nayla Razzouk, and Angelina Rascouet

    Before it's here, it's on the Bloomberg Terminal.