Oil futures spiked on Wednesday (30 November) after a production cut by Opec appeared to be close, with member nations expressing optimism that a deal to cut production could be reached at the conclusion of the cartel's meeting in Vienna.
At 12:01pm GMT, the West Texas Intermediate (WTI) front month futures contract was up 7.47% or $3.38 to $48.61 per barrel, while Brent was 7.85% or $3.64 higher at $50.02 per barrel, as Opec ministers expressed optimism that a deal could be reached at one of the most intensely-negotiated summits in recent years.
Saudi oil minister Khalid Al-Falih, who arrived in Vienna late on Tuesday, said talks on reaching an agreeable solution were going well amid signs Riyadh would accept a conditional freeze from Iran, as it attempts to conjure up a headline Opec production cut in the region of 1.1 to 1.3 million barrels per day (bpd).
Suhail Al Mazroui, oil minister of the United Arab Emirates, told IBTimes UK that all Opec members were working hard to achieve a production cut as outlined at the International Energy Forum in Algiers in September.
Al Mazroui admitted negotiations had been "intense" for the last few months. "However, from all signs I have seen, things are positive."
Iraqi oil minister Jabbar Al Luaibi also said he was optimistic Opec can reach an agreement "acceptable to all members."
Meanwhile, Iranian oil minister Bijan Namdar Zanganeh claimed non-Opec Russia was ready willing to move from its previous position of freezing production and participate in a real term cut.
Responding to the market movement, Jason Schenker, president of Prestige Economics, told IBTimes UK if there is no Opec production cut deal in Vienna, the oil price could dip into the mid-$30s per barrel range "pretty quickly."
"Regardless of the Opec decision, market volatility is likely to persist well into 2017. The US summer driving season is the biggest source of oil demand. So we're looking at the April oil contract to feel the impact of that. Opec's task is to find a way to support the price until then. So I feel the oil price will remain under pressure for the next 90 days, especially so if there is no production cut agreement."
Schenker, who calls Opec the central bank of oil, also said the Vienna-based 14-member oil producers outfit was in some ways acting like a traditional central bank. "It is putting out a lot of forward guidance, and there has been considerable chatter around whether or not Opec would cut. The market is trading on that sentiment."
Abhishek Deshpande, lead oil market analyst at Natixis, said: "For the first time in a while, there is a sense of optimism that the Saudis and Iranians can reach some form of compromise from their heavily entrenched positions. In my opinion, a cut of at least 1.2 million bpd would be needed."
"However, Opec's task does not end at this meeting. I have always maintained that if there is a deal, its actual implementation is what the market would be scrutinising. If a cut is announced, and subsequently data aggregators like Platts and Argus continue to report incremental oil cargoes being loaded by Opec members, then what happens in Vienna would be meaningless as far as the market is concerned."
International Energy Agency has said that in the absence of a production cut by Opec, the oil market will take longer to rebalance in 2017, extending market surplus into a fourth successive year.