Oil holds near $47 after OPEC agrees first output cut in 8 years

Bloomberg

Oil held near $47 a barrel after advancing the most since April as OPEC agreed to reduce production for the first time in eight years, surprising traders who had expected members to maintain output.
Futures slipped 0.5 percent in New York after surging 5.3 percent Wednesday. The Organization of Petroleum Exporting Countries agreed to cut production to a range of 32.5 million to 33 million barrels a day, Iran’s Oil Minister Bijan Namdar Zanganeh said after talks in Algiers. U.S. data showed crude inventories in the world’s largest oil-consuming nation declined last week.
Oil had swung near $45 a barrel in the lead-up to the gathering in Algeria as traders speculated over whether OPEC would agree on ways to stabilize the market. Saudi Arabia and Iran had signaled before the meeting that an accord on Wednesday was unlikely, while all but two of 23 analysts surveyed by Bloomberg predicted no deal. An OPEC committee will recommend members’ production caps in November; Iran will be exempt from cuts.
“The devil is in the detail: they still need to come up with those individual country quotas,” Amrita Sen, chief oil analyst at consulting firm Energy Aspects Ltd. in London, said in a Bloomberg Radio interview. However, the deal is “very positive given the fact that this is the first time in eight years that they’ve actually come up with an agreement.”

GOLDMAN VIEW
West Texas Intermediate for November delivery was at $46.83 a barrel on
the New York Mercantile Exchange, down 22 cents, at 11:09 a.m. London time. The contract rose $2.38 to $47.05 on Wednesday. Total volume traded Thursday
was about 61 percent above the 100-day average. Prices have averaged about $44.87 this quarter.
Brent for November settlement, which expires Friday, lost 39 cents to $48.30 a barrel on the London-based ICE Futures Europe exchange, trading at a $1.47 premium to WTI. The global benchmark crude increased $2.72 to $48.69 on Wednesday.
While Goldman Sachs Group Inc. sees the OPEC deal adding as much as $10 a barrel to oil prices, the bank remains skeptical about the implementation of quotas, even if they’re ratified when
the group next meets on Nov. 30. History suggests OPEC’s ability to execute
its agreements is poor, according to Morgan Stanley.
“They haven’t functioned as a cartel since they changed strategy in 2014. This suggests that they may want to go back to that role,” said Thina Saltvedt, an oil analyst for Nordea Bank AB in Oslo. “They will take back some of their grip.”
Energy producers in Europe surged following the deal. Royal Dutch Shell Plc and BP Plc both rose more than 4.5 percent, driving up the FTSE 350 Oil & Gas Producers Index the most since February.
When details of the deal are agreed, oil’s price range could shift to between $50 and $60 a barrel, Energy Aspects’ Sen said. The decision to cut output comes in the wake of waning oil investments whose total effects are yet to be realized, Nordea’s Saltvedt said. Production coming in now is from investments made before the market collapsed. U.S. crude inventories fell for a fourth week last week, compared with a forecast increase in a Bloomberg survey. Stockpiles dropped by 1.88 million barrels, according to the Energy Information Administration. The biggest reboot of U.S. oil and gas rigs in two years will gain traction as higher prices prompt producers to resume investment in the most profitable plays, according to Platts RigData.