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Dec. 1, 2016, 3:22 a.m. EST

The surprise OPEC oil deal that was 2 years in the making

Non-OPEC producers will cut along with OPEC members

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By Myra P. Saefong, MarketWatch


AFP/Getty Images
They made a deal.

The Organization of the Petroleum Exporting Countries delivered a bag full of surprises, just in time for Christmas, at its much-anticipated meeting on Wednesday.

It completed a deal to cut production, while unveiling a number of other developments that contributed to a sharp rally in oil prices.

Read: OPEC reaches deal to cut oil production

Prices for oil soared Wednesday, with January West Texas Intermediate crude /zigman2/quotes/209723641/delayed CLF27 0.00% rising $4.21, or 9.3%, to settle at $49.44 a barrel on the New York Mercantile Exchange and February Brent crude  ended at $51.84 a barrel, up $4.52, or 9.6%.

“We considered all aspects and we came to the understanding that the market needs to be rebalanced,” Mohammed Saleh al-Sada, the Qatari energy minister and OPEC president, told reporters at a news conference Wednesday in Vienna. “Rebalance in the market would need courageous decisions from OPEC and with the support of some key countries of non-OPEC.”

Here’s what came out of the meeting:

• OPEC members agreed to cut output.

The 14-member group of major oil producers reached an agreement to reduce their collective output by 1.2 million barrels a day to a ceiling of 32.5 million barrels a day, al-Sada announced.

“We went from a 30% probability of an OPEC agreement to actually striking a deal,” said David Yepez, investment analyst and portfolio manager at Exencial Wealth Advisors.

Analysts will be scrutinizing OPEC oil production numbers in the next couple of months to confirm the plan’s implementation, but for now, “it appears to be a Christmas gift for U.S. oil producers,” he said.

Read: These U.S. oil stocks are soaring after OPEC’s cut—and more gains are on the way

The ceiling was at the low end of the target range of 32.5 million to 33 million barrels a day announced at a September meeting in Algiers.

“This is a much bigger cut than most people thought we’d get and could send the oil price up to between $56-$60 per barrel,” said Bob Minter, investment strategist at Aberdeen Asset Management.

Saudi Arabia, the group’s largest producer, will make the biggest cut at 486,000 barrels.

“Saudi oil revenues should increase even with a steep production cut: they make money and save their oil for future use,” said Anas Alhajji, an independent energy expert and former chief economist at NGP Energy Capital Management.

/zigman2/quotes/209723641/delayed
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Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the...

Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005. Myra has been with MarketWatch since 1998 and holds a master’s degree in English literature.

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