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Oil Deal Marks New Era For OPEC

Oil Deal Marks New Era For OPEC

Crude oil price has dropped back slightly today but has managed to hold onto the large part of yesterday's gains and is at around $50 a barrel with WTI at $49.24.

The second front-month Brent crude futures contract, now March 2017, traded a record 783,000 lots of 1,000 barrels each on Wednesday, worth around 39 billion dollars and easily beating a previous record of just over 600,000 reached in September. "The biggest winners from the agreement are USA shale producers, who will expand production as prices rally". Opec agreed to reduce collective production to 32.5 million barrels a day, prompting predictions of a possible crude rally to $60 a barrel from Goldman Sachs Group Inc. and Morgan Stanley. OPEC says that non-OPEC producers have agreed to cut output by 600 mbpd, which would mean a total cut of 1.8 mmbpd, nearly 2% of global output. Long-running disagreements between regional rivals Saudi Arabia and Iran had dimmed hopes for a deal at Wednesday's talks. The group of oil-producing countries pumped out 31.3 million barrels per day as of May, 2015, the highest level of oil production since August, 2012.

On Thursday, Russia's Energy Minister Alexander Novak said it will cut its oil output from November-December levels.

Traders pushed prices higher after the biggest non-Opec producer, Russia, said it would also cut output - its first co-ordinated move with the cartel in 15 years. "With the financing changes that (U.S. shale producers) have to undergo now, they have to hedge quite a proportion of their future production in order to get the financing they need", Halley said.

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OPEC president Qatar said non-OPEC producers had agreed to reduce output by a further 0.6 million bpd, of which Russian Federation would contribute some 0.3 million.

The bank's main forecast is based on OPEC cutting oil production to 33 million barrels a day, reflective of a 73 percent compliance to Wednesday's target.

The decision comes after more than two years of depressed oil prices, which have more than halved since 2014, due to a supply glut on the market.

Some oil stocks, the fortunes of which reflected the fate of oil, could now begin to look up, especially as oil companies have resorted to several measures in the intervening years, including cost cuts and trimming of capital expenditure, to counter the impact of falling oil prices.

Beyond Moscow, "the OPEC producers seem to try to convince countries outside participation in cartel efforts", said Tim Evans in a note from Citi.