For the first time since 2014, Riyadh indicated it was willing to cut its own production to achieve OPEC's lower production target of 32.5 million barrels a day, allowing archrival Iran, as well as Nigeria and Libya, to keep raising output that has been held back by Global sanctions and insurgencies. But members would have to wait till November to finalise on the quantity of reduction that is suitable for each country.
"There are concerns about the execution of Opec's new production targets and many actually feel that the headlines are more bullish than the reality of the situation", IG Markets analyst Chris Weston said in a note. The markets have responded to the deal in kind. The price increased by another 1.1 percent on Thursday, closing at $49.24 per barrel.
Iran and Saudi Arabia mostly maintained their August outputs after setting all-time records in the first half of this year in production growth and output, respectively.
Iraq and Libya led the oil production increases forecasted by experts in September.
More importantly, after two years of high supply and low prices, it appears that OPEC has thrown in the towel and don't want to fight with USA shale suppliers anymore.
Immediately after the OPEC decision, prices on Brent Crude soared by six percent.
The agreement caught the market by surprise after prior signals from Saudi Arabia and Iran that an accord was unlikely. History suggests OPEC's ability to execute its agreements is poor, Morgan Stanley said.
Novak said Russian Federation would like to see prices climb to the $50 to $60 range from the $40 to $50 range, an increase he said "would allow to satisfy both the interests of producers and consumers". Iran is seeking investment to boost supply further. "What we have is rhetoric alluding to a deal that gives breathing room for prices to rise and for OPEC to decide on the terms of its agreement and how to put it into place". As the fourth largest importer of crude oil, India imports 85 percent of total oil and 95 percent of natural gas from OPEC nations.
Gasoline pump prices have mirrored cheaper oil. At present, India incurs a massive Rs. 4.5 lakh crore on crude imports.
The Dow Jones industrial average fell 37.39 points, or 0.2 percent, to 18,301.85, the S&P 500 lost 4.47 points, or 0.21 percent, to 2,166.9 and the Nasdaq Composite dropped 22.87 points, or 0.43 percent, to 5,295.68. "But relentless improvements in shale technology will keep Saudis awake at night wondering if they have made the right choice". Oil prices moving up through the $50 -60 range and above should incentivize U.S. shale producers to rebound st rongly back to a positive growth path, potentially to the point of not just growing 1 -m b/d for one year, but seeing sustained growth for several years -and gaining market share at OPEC's expense. But the potential for a production freeze, which could jack up prices, remains a serious possibility in the near future.