This is certainly the best present traders could have for Christmas - a supply cut from OPEC. The cartel has shown a united front and this is what matters the most. There have been so many doubts over the year as to whether they had the ability to deliver a deal but on Wednesday it looked as though they did.
The unofficial word out of Vienna, where OPEC members are meeting, is that an agreement with a bigger than expected cut has been forged. The reports helped boost oil by nearly 7 percent on Wednesday.
This will support oil prices in the longer term, but the element which is going to increase the price of oil even further, in the coming days, is GDP growth around the globe. Donald Trump, the U.S. President-elect, is going to spend and he is going to spend big on infrastructure. This surely is going to help the demand equation for oil.
The element which traders are going to look closely at is how long this agreement will last and if any player is going to cheat.
But stability on the oil front also means that inflation will continue to move higher and higher oil prices will feed into production prices. Central banks are going to pay more attention to inflation.
Higher oil prices will also make room for more rigs to go live and it is something which traders need to be mindful of. As we see those rig numbers ticking higher in the U.S., investors will become conscious of the supply.
Finally, higher oil prices may have an impact on the equity markets as energy firms will begin to produce better quarterly earnings as well.
With an OPEC production cut deal in place, the new norm for crude prices could be between $50 and $60 going forward.