Oil prices surged by more than 4 per cent yesterday after OPEC agreed a surprise cut in oil output, removing 900,000 barrels per day from world supplies ahead of peak winter demand.
US light crude settled $1.11 (97 cent) a barrel firmer at $28.24 a barrel, or up 4.1 per cent, while London benchmark Brent futures settled $1.14 higher at $26.68.
OPEC said from its production meeting in Vienna that the cuts would begin on November 1st. Analysts were surprised that OPEC would tighten the taps together rather than letting the world's top producer Saudi Arabia quietly trim production, as it has often served as the cartel's swing producer during recent supply interruptions from Venezuela and Nigeria.
"There is no escaping that by bringing out the news in this way that they went for maximum market effect," said Mr Jan Stuart, analyst at Fimat in New York.
He said in the past OPEC said it would cut production when the cartel's basket of crude prices traded below $22 per barrel for 20 consecutive business days.
But prices never did hit those levels and yesterday's decision was aggressive, especially since many hedge funds had recently taken short positions. "That in itself is pretty bullish," said Mr Stuart.
Oil futures had been falling steeply since the start of the month, taking levels down to four-month lows, but prices have not fallen much below the mid-point of OPEC's $22-$28 a barrel price range for an index of crudes. - (Reuters)
