Oil prices increased more than $1 a barrel today, rebounding from a five-month low after Opec surprised traders with a deal to effectively cut production by just over 500,000 barrels per day (bpd) from July levels.
Most analysts had expected the producer cartel to maintain formal targets at its meeting in Vienna, although some had suggested they could tighten compliance in order to help stem a near 30 percent slump in oil prices since July.
US crude for October delivery was up 52 cents at $103.78 a barrel earlier, reversing earlier losses of more than $1 a barrel after the Opec decision. Prices slumped to their lowest in five months a day ago.
London Brent crude rose 63 cents to $100.97, after falling below $100 yesterday for the first time since April.
"Since the market is over-supplied, the conference agreed to abide by September 2007 production allocations (adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq), totalling 28.8 million bpd," the group said in a communique after a nearly five-hour meeting.
Opec President Chakib Khelil said the decision would mean reducing production by about 520,000 bpd versus July levels, a reduction of about 1.8 percent, and that he still saw surplus oil supply building on the market by the end of the year.
Analysts said the group had sent a clear message to markets.
"It certainly shows that Opec is not afraid to defend a $100 price level," said Jonathan Kornafel, Asia director at US-based options trader Hudson Capital Energy.
Edward Meir, analyst at brokers MF Global in New York, agreed: "The boys at Opec have thrown a surprise by cutting production... I expect the (market) reaction to intensify as the day goes on."
The calculations of the new target were complicated by the inclusion of new members and the removal of Indonesia, which asked that its membership be suspended, and some analysts questioned whether the cuts would fully materialise without details on which countries would be expected to curb supply.
Other analysts said the cut was modest compared to the risks to global oil demand posed by high prices and endangered economic growth, which are already taking their toll.
Later in the day traders will seek direction from US inventory data, expected to show a fall in US crude stocks by 4.4 million barrels in the week to September 5th after Gustav shut down fields.
Petroleum stocks were seen falling by 4.2 million barrels and distillates by 2.7 million barrels in the data.
Meanwhile Hurricane Ike's progress toward the US Gulf of Mexico kept most oil and natural gas production shut in for a second week, although its path has recently shifted south and west of the biggest concentration of production platforms, aiming instead toward the Texas refining hub of Corpus Christi.