Workers walk at Rumaila oilfield in Basra, 420 km (260 miles) southeast of Baghdad
Oil futures rally continued as trader priced in Opec's production cut Reuters

Oil benchmarks continued to extend gains on Monday (5 December), as Opec's decision to cut its headline crude production by 1.2 million barrels per day (bpd) to 32.5 million bpd from January 2017, fuelled a fresh round of long calls, i.e. bets that the crude price will rise.

At 3.18pm GMT, the Brent front month futures contract was up 1.10% or 60 cents to $55.06 per barrel, while the West Texas Intermediate was 0.62% or 32 cents higher at $52.01 per barrel.

Following the conclusion of its ministers' meeting in Vienna, Austria on 30 November, Opec said bulk of the reduction, a first real-terms cut in eight years, would come from Saudi Arabia, which would account for 486,000 bpd.

Opec also said its output cut will be supported by non-Opec producers to the tune of a 600,000 bpd reduction, of which the Russian federation will account for 300,000 bpd. Crunch talks with Russia and other non-Opec producers have been scheduled in Moscow with a view to providing more details.

The said deal exceeds City analysts' expectations, with many opining that if implemented in full it would in all likelihood result in the oil market rebalancing at a quicker pace.

Tom Holl, portfolio manager at BlackRock Commodities Income Trust, said that without an Opec deal, the anticipation was that the oil market would move back into balance by the second half of 2017. "The agreement, if implemented and adhered to, would effectively bring forward that re-balancing by six months and drive a draw in the amount of oil stockpiled in the US, rather than just limit increases through next year."

Michael Wittner, global head of oil research at Société Générale, said Opec could firm up the current deal with fresh version when it next meets in May. "Overall, the agreement should move Brent prices from a $40-50 world this year to a $50-60 world next year. We do expect another agreement in May, and we are expecting somewhat higher output in the second half of next year, either formally in an adjusted target, or informally via lower compliance."

But not everyone is convinced. Jayesh Parmar, partner in the energy and resources practice at Baringa Partners, said the impact of Opec's decision to cut oil production is overstated.

"Whilst this is the first agreement to cut output in eight years, the deal will be hard to police. It is also based on the expectation that major non-Opec countries such as Russia will voluntarily reduce their output. Oil prices may spike in the short-term but I don't expect the price momentum to be sustained."

Away from the oil market, precious metals headed lower despite volatility in currency market following a defeat for Italian Prime Minister Matteo Renzi in the country's constitutional referendum. Renzi resigned following the result sending the euro down to a 20-month low, before it mounted a recovery.

However, as the dollar strengthened, the Comex gold futures contract fell 1.24% or $14.60 at 3.40pm GMT to $1,163.20 an ounce, while Comex silver fell 0.90% or 15 cents to $16.68 an ounce. However, spot platinum bucked the wider precious metals market trend registering a rise of 0.22% or $2.05 to $931.29 an ounce.

Fawad Razaqzada, market analyst at, said: "Our long term bearish outlook on the EUR/USD has not changed. The EUR/USD will probably make its next big move on Thursday (8 December) in reaction to the European Central Bank's policy meeting and then next Wednesday when the US Federal Reserve will mostly likely hike interest rates."