Oil Prices Surge As OPEC Finalizes Historical Deal Since 2008

The Oil Prices increase up to 9 percent as the OPEC finalizes the historical deal on November 2016 to cut its production since 2008, More non OPEC countries like Russia will join the OPEC deal, ForexSQ experts conducted complete article about Oil prices after the OPEC deal.

Oil Prices After OPEC Deal

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OPEC agreed on Wednesday its first oil output cuts since 2008 after Saudi Arabia accepted “a big hit” on its production and dropped its demand on arch-rival Iran to slash output.

Non-OPEC Russia will also join output reductions for the first time in 15 years to help the Organization of the Petroleum Exporting Countries prop up oil prices.

Brent crude jumped over 9 percent to more than $50 a barrel as Riyadh reached a compromise with Iran and after fast-growing producer Iraq also agreed to curtail its booming output.

“OPEC has proved to the sceptics that it is not dead. The move will speed up market rebalancing and erosion of the global oil glut,” said OPEC watcher Amrita Sen from consultancy Energy Aspects.

Iran and Russia are effectively fighting two proxy wars against Saudi Arabia, in Yemen and Syria, and many sceptics had said the countries would struggle to find a compromise amid frosty political relations.

Saudi Energy Minister Khalid al-Falih said ahead of the meeting that the kingdom was prepared to accept “a big hit” on production to get a deal done.

“I think it is a good day for the oil markets, it is a good day for the industry and … it should be a good day for the global economy. I think it will be a boost to global economic growth,” he told reporters after the decision.

OPEC produces a third of global oil, or around 33.6 million barrels per day, and under the Wednesday deal it would reduce output by around 1.2 million bpd from January 2017.

Saudi Arabia will take the lion’s share of cuts by reducing output by almost 0.5 million bpd to 10.06 million bpd. Its Gulf OPEC allies – the United Arab Emirates, Kuwait and Qatar – would cut by a total 0.3 million bpd.

Iraq, which had insisted on higher output quotas to fund its fight against Islamic State militants, unexpectedly agreed to reduce production – by 0.2 million bpd.

Iran was allowed to boost production slightly from its October level – a major victory for Tehran, which has long argued it needs to regain market share lost under Western sanctions.

Clashes between Saudi Arabia and Iran dominated many previous OPEC meetings.

“If you get this deal done, it would be huge. You remove a lot of oil from the market and you get the Russian participation,” said veteran OPEC watcher and founder of Pira consultancy Gary Ross.

He said oil could rise to $55 per barrel.

Will OPEC Deal on November 2016 Comply?

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Falih had long insisted OPEC would do an output-limiting deal only if non-OPEC producers contributed.

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

Russia, which had long resisted cutting output, pushed its production to new record highs in recent months.

“Russia will gradually cut output in the first half of 2017 by up to 300,000 barrels per day, on a tight schedule as technical capabilities allow,” Russian Energy Minister Alexander Novak told a briefing in Moscow.

Novak, who spoke an hour after OPEC announced its deal, did not say from which output levels Russia would cut.

A combined output reduction of 1.8 million bpd by OPEC and non-OPEC represents almost 2 percent of global output and would help the market clear a stocks overhang, which had sent prices crashing from levels as high as $115 a barrel seen in mid-2014.

Non-OPEC Azerbaijan and Kazakhstan have said they might also cut.

OPEC suspended Indonesia’s membership on Wednesday since the country, a net importer, could not cut output, Qatar said.

The move will not affect OPEC’s overall reduction as Indonesia’s share of cuts will be redistributed among other members.

Bob McNally, president of Washington-based consultancy Rapidan group, said on Twitter that compliance with cuts would be key: “In deals with Russia, OPEC is like (the late U.S.) President (Ronald) Reagan used to say: ‘Trust but verify’.”

OPEC will hold talks with non-OPEC producers on Dec. 9. The organization will also have its next meeting on May 25 to monitor the deal and could extend it for six months, Qatar said.

OPEC Oil DEAL 2016, Stock Markets Record Highs

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Gains in energy and bank stocks lifted the Dow and the S&P 500 to record intraday highs on Wednesday, but losses in technology stocks dragged down the Nasdaq.

Oil prices surged 8 percent after Kuwait’s oil minister said the OPEC had agreed to cut production to 32.5 million barrels per day. [O/R]

The S&P 500 energy sector soared as much as 5.3 percent to a 17-month high, boosted by gains in Exxon and Chevron. Energy-related stocks were the top 20 percentage gainers on the S&P 500 index.

“I suspect this move in oil is probably temporary and may not last very long, but it is giving a boost to the market,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab.

November is set to be Wall Street’s best month since March, with the markets rallying on Donald Trump’s victory in the U.S. presidential election.

Investors expect the market to benefit from Trump’s policies, including higher spending on infrastructure and simpler regulations in the healthcare and banking industries.

Steven Mnuchin, Trump’s pick for Treasury secretary, told CNBC that tax reforms and trade pact overhauls would be top priorities of the new administration.

U.S. private employers stepped up hiring in November and consumer spending increased last month, the latest signs of economic strength that could further cement the case for an interest rate hike.

Traders have currently priced in an 89 percent chance of the Fed raising rates at its meeting next month, according to Thomson Reuters data. A crucial monthly hiring report on Friday is likely to play a big role in the central bank’s deliberations.

The financial index rose 1.2 percent, while bond-proxy sectors such as utilities and real estate were on a sell-off mode.

Fed Presidents Robert Kaplan and Loretta Mester, speaking at separate events, appeared hawkish on rates.

“Since the election, interest rate prospects in the market have been moving up, and all the economic numbers we got today were good,” Frederick said.

At 12:41 p.m. ET the Dow Jones industrial average was up 68.55 points, or 0.36 percent, at 19,190.15. It hit an all-time high of 19,225.29.

The S&P 500 was up 2.03 points, or 0.09 percent, at 2,206.69 after hitting a record of 2,214.10.

The Nasdaq Composite was down 36.32 points, or 0.68 percent, at 5,343.60, weighed down by Apple and Amazon.com.

GoPro rose 3.3 percent after the wearable camera maker said it would cut 15 percent of its workforce and shut its entertainment business.

Teen apparel retailer American Eagle Outfitters dropped 13.5 percent to $16.35 after providing a disappointing profit forecast for the crucial holiday quarter.

Declining issues outnumbered advancers on the NYSE by 1,643 to 1,262. On the Nasdaq, 1,651 issues fell and 1,101 advanced.

The S&P 500 index showed 57 new 52-week highs and one new lows, while the Nasdaq recorded 152 new highs and 33 new lows. ForexSQ.com use Reuters as source of this article.

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