Oil prices soared more than 8 percent on Wednesday as some of the world's largest oil producers agreed to curb oil output for the first time since 2008 in a last-ditch bid to support prices.
Crude prices, however, are unlikely to skyrocket in reaction to the deal, but will instead take measured steps higher, traders and analysts said.
The Organization of the Petroleum Exporting Countries agreed to cut production to 32.5 million barrels per day, Kuwait's oil minister said. The cuts include Iraq reducing output by 200,000 bpd to 4.351 million bpd beginning in January. The country had previously resisted cuts, providing a hurdle to an agreement.
The cut was at the low end of production of a preliminary agreement struck in Algiers in September, and reduces production from a current 33.64 million bpd.
Non-OPEC member Russia has 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 CLc1 for January delivery rose $3.93 to $49.16 a barrel, a 8.7 percent gain at 12:09 p.m. Eastern. The move was the largest one-day gain since February.
"It's going to take time to see whose 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.
The market will grow in a measured way because traders with short positions have already exited crude futures, according to Dominic Chirichella, senior partner at the Energy Management Institute.
"There's going to be an air of cautiousness and rightfully so," he said. "I think the market is going to move to the upside, but in a metered, cautious manner over a period of time."
The oil rally ricocheted through the market, with stocks and bond prices reaction to the move.
U.S.-listed oil companies including Exxon Mobil Corp (XOM.N), Chevron Corp (CVX.N) and Schlumberger (SLB.N) saw shares rise as crude prices climbed. Some U.S. producers saw shares spike more than 10 percent, including Pioneer Natural Resources (PXD.N), Hess Corp (HES.N) and Anadarko Petroleum (APC.N).
Deferred spreads for U.S. and Brent crude futures also rallied on the OPEC deal.
The WTI Dec 2017 to Dec 2018 CLZ7-Z8 spread rallied to as much as negative 39 cents from negative $1.26 a barrel on Tuesday. Meanwhile, the Brent Dec 2017 to Dec 2018 LCOZ7-Z8 spread rallied to as much as negative $1.04 a barrel from negative $1.87 a barrel on Tuesday.
A weekly government report on U.S. crude oil stockpiles had little sway in the market, which remained focused on the OPEC deal. U.S. crude stockpiles unexpectedly fell 884,000 barrels in the week, compared with forecasts of a 636,000-barrel increase.
(Additional reporting by Amanda Cooper and Karolin Schaps in London, Henning Gloystein in Singapore; Editing by Marguerita Choy and Chizu Nomiyama)
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