Rally in crude oil prices kicks into overdrive on word that OPEC made a deal to cut production for the first time in nearly a decade. File photo by Monika Graff/UPI | License Photo
NEW YORK, Nov. 30 (UPI) -- Oil prices staged one of their largest spikes in years on word that members of the Organization of Petroleum Exporting Countries brokered a production deal.
Sources close to the conversation in Vienna said ministers have outlined the terms of an agreement that would cut output. If those reports are accurate, the production levels, which may depend on cooperation from non-member states, would cap production to just below the low end of an arrangement proposed in Algeria.
Saudi Oil Minister Khalid al-Falih pushed the rally into overdrive early Wednesday with comments the oil-rich kingdom would take it on the chin if that meant solidifying the agreement.
The price for Brent crude oil was up 6.9 percent to start the trading day at $50.59 per barrel in New York. West Texas Intermediate, the U.S. benchmark price for oil, was up 6.6 percent to open the day at $48.23 per barrel.
Brent crude oil prices last topped $51 per barrel in mid-October as rumors circulated over the prospects for a deal in Vienna.
The proposed arrangement came with casualties as sources indicated early Wednesday that Indonesia was suspended from OPEC after rejoining the group early this year. That would sideline its share of production and could alter the figures evolving from Vienna.
With the devil still in the details, some members may get exemptions while others would agree to put a cap on their production. If it's a cut, and that could in theory depend heavily on action from non-member states like Russia, it would be the first since 2008.
Elsewhere, industry data from the American Petroleum Institute show U.S. crude oil inventories drew down by about 700,000 barrels from last week. That would indicate strengthening demand, though analysts cited by S&P Global Platts this week said the market situation may be ripe for economic gains from more storage as crude oil prices strengthened, even without today's agreement from OPEC.
Qatari Energy Minister and OPEC President Mohammed Bin Saleh al-Sada said there were lingering concerns about continued imbalance in the global market. Already, some members and non-members like Iran and Russia, respectively, are producing oil at historic records. Even without a deal, he said there are signs the market situation was returning to balance.
World oil demand, he said, is expected to be "healthy," while small growth in production was seen outside of OPEC, notably in the United States. Nevertheless, a global surge in oil production means high inventory levels were a "major worry" for OPEC.
"In examining the current market, we can grasp the urgency of the situation," he said.