Oil hits $ 50 after OPEC decides to cut supply

Oil extended its biggest gain in nine months and crude producers rallied after OPEC approved the first supply cuts in eight years, with focus now shifting to how strictly it will implement its bid to ease a record glut. Futures added as much as 1.6 percent in New York and traded above $50 for the first time since Oct. 27. Prices surged 9.3 percent Wednesday, posting the largest gain since February amid record volumes. OPEC agreed to reduce collective production to 32.5 million barrels a day, Iranian Oil Minister Bijan Namdar Zanganeh said in Vienna Wednesday. Goldman Sachs Group Inc. and Morgan Stanley said prices could rise to $60 a barrel.

Oil has whipsawed since a production-cut was first proposed in Algiers in September and investors speculated about whether an accord could be struck. The deal, designed to drain record global oil inventories, overcame disagreements between the group’s three largest producers – Saudi Arabia, Iran and Iraq – and ended a flirtation with free markets that started in 2014.

“The market will no longer see a sudden plunge in oil prices,” Seo Sang-young, a market strategist at Kiwoom Securities Co., said by phone from Seoul. “The biggest winners from the agreement are U.S. shale producers, who will expand production as prices rally.”

West Texas Intermediate for January delivery rose as much as 80 cents to $50.24 a barrel on the New York Mercantile Exchange and traded at $49.85 at 4:15 p.m. in Seoul. The contract jumped $4.21 to close at $49.44 a barrel on Wednesday as aggregate trading volume on Nymex rose to a record 2.5 million contracts, according to updated CME data compiled by Bloomberg. Prices gained 5.5 percent in November.

Further Upside

Brent for February settlement added as much as 89 cents, or 1.7 percent, to $52.73 a barrel on the London-based ICE Futures Europe exchange. The January contract jumped $4.09, or 8.8 percent, to expire on Wednesday at $50.47 a barrel. The global benchmark traded at a $1.54 premium to WTI.

Saudi Arabia, which raised oil production to a record this year, will reduce output by 486,000 barrels a day to 10.058 million a day, an OPEC document shows. Iraq, the group’s second-largest producer, agreed to cut by 210,000 barrels a day from October levels. The country had previously pushed for special consideration, citing the urgency of its offensive against Islamic State.

Shale producers rejoice 

The U.S. shale industry, gutted by 2 1/2 years of bankruptcies, writedowns, credit downgrades and layoffs, is poised to step back from the brink, thanks to an old enemy: OPEC.

Abandoning a policy that sought to starve shale explorers and other high-cost drillers into submission, the Organization of Petroleum Exporting Countries relented on Wednesday and agreed to curb output by 1.2 million barrels a day. Other producing nations that aren’t cartel members also signaled plans to cut back by as much as 600,000 barrels, OPEC said.

If the deal holds, “U.S. oil production growth is all but guaranteed to return in 2017,” said Joseph Triepke, founder of Infill Thinking, a Dallas-based oil research firm, and a former analyst at Citadel LLC’s Surveyor Capital unit.