NEW YORK--Oil soared more than 10 percent on Wednesday to over $50 a barrel and its highest in a month as some of the world's largest producers agreed to curb production for the first time since 2008 in a bid to support prices.
Crude prices rose nearly 5 percent for the month. However, they are unlikely to skyrocket further in reaction to the deal and the rally may even be short-lived, traders and analysts said.
The Organization of the Petroleum Exporting Countries, which accounts for a third of global oil supply, agreed to cut production from January by around 1.2 million barrels per day (bpd), or over 3 percent, to 32.5 million bpd. The cut will put production at the low end of a preliminary agreement struck in Algiers in September, and will reduce output from a current 33.64 million bpd.
The group's de facto leader Saudi Arabia said it would take the lion's share of cuts - reducing output by almost 500,000 bpd to 10.06 million bpd - to get the deal done. Iraq, OPEC's second largest producer which had previously resisted cuts, providing a hurdle to a deal, agreed to reduce output by 200,000 bpd to 4.351 million bpd.
Iran was allowed to boost production slightly from its October level. This was a major victory for Tehran, which has long argued it needs to regain market share lost under Western sanctions.
Non-OPEC member Russia, which had long resisted cutting output and pushed its production to new record highs in recent months, agreed to cut output by 300,000 bpd. OPEC will meet with non-OPEC producers on Dec. 9.
U.S. West Texas Intermediate crude futures for January delivery settled up $4.21 to $49.44 a barrel, a 9.6 percent gain. They earlier rose 10 percent, the largest one-day move since February.
Brent crude futures for January delivery settled up $4.09 a barrel or 8.82 percent at $50.47 a barrel. The contract expires Wednesday, and the February contract rose 8.9 percent to $51.51.
Oil prices will continue to strengthen on the deal, but sharp gains will be limited as market skepticism lingers about how effective the cuts will be. "It's going to take time to see who's going to abide by those rules," said Oliver Sloup, director of managed futures at IITrader.com. In the past, not all producers have complied with agreements on supply cuts, Sloup said. As a result, there is skepticism about how closely the production caps will be adhered to.
Kuwait, Venezuela and Algeria have agreed to monitor compliance with the OPEC agreement.
