The Organization of Petroleum Exporting Countries (OPEC) agreed on Wednesday to curtail oil production by 1.2 million barrels per day, reducing output to 32.5 million barrels per day. This is the first oil reduction agreement to pass since 2008. OPEC also announced that it expects non-OPEC countries to curb their own production, with Russia expected to cut 300,000 barrels a day and other countries contributing another 300,000 barrel cut per day. Russia hasn’t joined output reduction efforts for the past 15 years. Saudi Arabia, which lead the OPEC meeting, committed to reducing its output by 486,000 barrels per day, roughly 60 percent of its expected cut. Indonesia, the only East Asian OPEC member state suspended its membership in the organization citing that it wasn’t willing to participate in the requested cuts.
"I think it is a good day for the oil markets, it is a good day for the industry and ... it should be a good day for the global economy. I think it will be a boost to global economic growth," Saudi Energy Minister Khalid al-Falih announced after the meeting.
U.S. crude oil rose more than 9 percent overnight to just under $50.00 per barrel, while Brent crude traded at six-week highs of just below $52.00 per barrel on Thursday. Despite the gains, Brent prices remain less than half of where they were just two years ago. The rise in oil prices contributed to inflation expectations in the United States, which were already high on beliefs that incoming president Donald Trump will implement a large fiscal stimulus plan.
Currencies React to the Deal
The dollar hit 9 ½ month highs against the yen on Thursday morning, hitting 114.830, following overnight gains of 1.8 percent. The euro remained steady at $1.0593 following a 0.6 percent slide overnight. Spot gold hit a 10-month low of $1,163 in response to the dollar’s rise.