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CORRECTED-UPDATE 9-Oil rises near $50; doubts on OPEC plan limit gains

Published 30/09/2016, 06:38 am
© Reuters.  CORRECTED-UPDATE 9-Oil rises near $50; doubts on OPEC plan limit gains
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(In paragraph 4, corrects three-week high in Brent to $49.81, not $47.81)

* Prices up 7-8 pct since news of OPEC cuts

* Lack of clarity on timing, quota for cuts bug analysts

* OPEC plans to cut 700,000 bpd, glut at 1.0-1.5 million bpd

By Barani Krishnan

NEW YORK, Sept 29 (Reuters) - Oil prices jumped more than 1 percent on Thursday, with Brent nearing $50 a barrel on optimism over OPEC's first planned output cut in eight years, although gains were limited as some analysts doubted the reduction would be enough to make a substantial dent in the global crude glut.

The Organization of the Petroleum Exporting Countries agreed on Wednesday to cut output to 32.5-33.0 million barrels per day (bpd) from around 33.5 million bpd, estimated by Reuters to be the output level in August. said other details will be known at its policy meeting in November, leaving unanswered when the agreement will come into effect, what new quotas for member countries will be and for what periods, and how compliance will be verified.

Brent crude LCOc1 settled up 55 cents, or 1.1 percent, at $49.24 a barrel. It hit a three-week high at $49.81.

U.S. West Texas Intermediate crude CLc1 rose 78 cents, or 1.7 percent, to settle at $47.83 after a one-month high at $48.32.

Since OPEC's announcement, Brent has gained about 7 percent and WTI has risen nearly 8 percent, the biggest two-day rise since April. On Wednesday, Reuters data showed volume in WTI hit a record high of about 986,000 lots, about $4.6 billion in traded value.

Even so, Thursday's settlement, coming sharply off the day's highs, suggested the rally was waning.

"The fact we came so close to $50 a barrel and yet did not hit it tells me the market is beginning to sense this OPEC production cut will be a sham," said Tariq Zahir, who trades WTI time spreads for Tyche Capital Advisors in New York.

OPEC officials said their plan will remove around 700,000 bpd from the market. Analysts estimate the global crude oversupply at between 1.0-1.5 million bpd.

Some analysts were upbeat about the deal.

Paul Horsnell, head of commodities research at Standard Chartered (LON:STAN), said it was significant Saudi Arabia's stance was returning to price-defense from market share protection.

"We believe the meeting represents a 'read my lips' moment, particularly on the part of Saudi Arabia," Horsnell said. "'Read our lips, prices will rise'".

Analysts at Goldman Sachs (NYSE:GS) said higher crude prices will spur non-OPEC output, particularly U.S. shale oil. The U.S. oil drilling rig count has risen in 12 of the 13 past weeks. RIG/U

"If this proposed cut is strictly enforced and supports prices, we would expect it to prove self defeating medium-term with a large drilling response around the world," Goldman said in a note. It maintained its end-2016 forecast of $43 and end-2017 projection of $53, projecting a $7-10 rally in the first-half next year if the cuts were honored.

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