Oil rose nearly $1 to above $62 a barrel on Thursday after Opec decided to cut its output by 2 percent starting in February. The front-month January contract for US light crude rose 96 cents to $62.33 a barrel by 1805 GMT. London Brent crude for January rose 63 cents to $61.96 ahead of its expiry on Thursday.
Opec decided to reduce production by 500,000 barrel a day, effective February 1, despite a warning by the International Energy Agency that a 1.2 million bpd cut by the cartel agreed to in October was already tightening the market.
"We are committed to supplying the market, but we want to establish a balance between supply and demand," Opec President Edmund Daukoru said. Analysts said the agreement appeared to be a compromise between Opec members pushing for reductions and those opposed to fresh cuts.
"Opec wants to signal a cut, but many members don''t want to reduce output. It''s a fudge which gets round the market and reconciles the two different views on what the group should do," Geoff Pyne, an independent oil analyst, said.
"If more cuts are needed, then surely that proves that half the group didn''t comply with the cuts last time. So why should those that did cut do so again?" According to Reuters estimates, Opec has made good on only about two thirds of the pledged 1.2 million bpd cut, which took effect on November 1. Opec ministers put compliance to the new cap of 26.3 million barrels much higher, at above 80 percent.
The new cut will take effect after the peak demand point in the Northern Hemisphere winter. "February 1 cuts make sense, as they will impact March deliveries. Opec generally points to weaker product demand in the second quarter as the driving factor for a cut," Harry Tchilinguirian, an analyst at BNP Paribas, said.
Opec price hawks Iran and Venezuela said they expected oil prices to steady above $60 as a result of Thursday''s deal. Saudi Arabia insisted price had played no role in Opec''s decision.
"The market is out of balance. Stocks are at more than a five-year high," Daukoru said, despite data showing the previous cut was already having an effect. US government data released on Wednesday showed crude stocks declined last week by 4.3 million barrels as imports fell.
The IEA said stocks in industrial countries fell by 40 million barrels in October, a trend that continued last month as well. The IEA, advisor to 26 industrial countries, said in a monthly report on Wednesday that the November 1 Opec cut was making itself felt, but called it "cold comfort for a risk-prone global economy already facing another winter with high oil prices."
Oil prices have fallen from a mid-July peak of $78.40 but are still historically high at triple the price at the end of 2001. Higher Asian demand, as well as worries over supply from Iraq, Nigeria, Iran and Russia, had helped fuel the rally.
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