Oil. Picture: REUTERS
Oil. Picture: REUTERS

London — Oil surged by as much as 5.8% in London as Opec was said to agree on a larger-than-expected deal with its allies to reduce output.

The producer alliance will collectively curb production by 1.2-million barrels a day, delegates from the Opec said after concluding a second day of meetings in Vienna on Friday. That was more than cuts of 1-million barrels a day that had been discussed earlier. Russia also agreed to join, according to one delegate.

The breakthrough occurred after Opec failed to reach an agreement during meetings on Thursday and after uncertainty on Friday morning over agreeing to a deal at all.

“Finally they got one, nobody really believed it after the morning hours,” Commerzbank analyst Carsten Fritsch said by phone. “It’s mainly due to the lowered expectations before the deal.”

Oil had plunged by more than 30% earlier this month from a four-year high in October, as concern over excess supply was fueled by sanctions waivers given for some buyers of Iranian oil and growing US crude inventories and production. Friday morning saw meetings between Russia’s energy minister and his Iranian and Saudi counterparts, as producers sought to hammer out a deal to reduce output.

Brent for February settlement added as much as $3.48 to $63.54 a barrel on London’s ICE Futures Europe exchange, after falling 2.4% on Thursday. It traded at $63.23 a barrel by 9.52am New York time.

West Texas Intermediate (WTI) for January delivery gained $2.36 to $53.85 a barrel on the New York Mercantile Exchange. The US benchmark traded at a $9.13 discount to Brent. Total WTI volumes traded were about double above the 100-day average.

Opec concluded its meeting with an accord to remove 1.2-million barrels a day of oil supply from the market, with its allies including Russia taking a 400,000 barrel-a-day share, delegates said, asking not to be named because the information was not public. Iran, which has sharply reduced oil shipments amid US sanctions, was granted an exemption from curbing its output, according to oil minister Bijan Namdar Zanganeh.

After a meeting on Thursday, Saudi energy minister Khalid Al-Falih had talked down the potential for a deal, saying that he was not confident one could be reached.

“This cut size is a positive surprise versus yesterday,” said Giovanni Staunovo, a commodities analyst at UBS. “It will be interesting to see if there’s a meeting when they review in April and how that will work, but for now, this is bullish.”

With Tsuyoshi Inajima

Bloomberg