Oil moved higher on Friday as OPEC and its allies agreed to deepen oil production cuts to 500,000 barrels a day through to March 2020. This brings the total production cut to 1.7 million barrels a day.
U.S. West Texas Intermediate crude futures gained 77 cents, or 1.3%, to settle at $59.20 a barrel. For the week WTI gained more than 7%, for its best week since June. During Friday's trading session Brent gained 1.6% to settle at $64.37.
Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman told reporters on Friday that the oil-rich kingdom's quota would be an additional 167,000 barrels per day. He also said that the kingdom would continue to exceed its quota by 400,000 barrels a day, which means the overall production cut will actually be closer to 2.1 million barrels a day.
The country is OPEC's de facto leader, and has been adamant that those who were previously overproducing — such as Iraq and Nigeria — comply with the group's quota. Prince Abdulaziz bin Salman said that the country's additional and voluntary cut would be contingent on other countries abiding by their allocation.
Russian Energy Minister Alexander Novak said Moscow's quota would be 300,000 b/d during the first three months of 2020. This measurement excludes gas condensate — a high-value light crude extracted as a by-product of gas production.
The energy alliance said it plans to review the policy at an extraordinary meeting on March 5-6.
On Thursday the 14-member cartel, as well as its allies, which is known as OPEC+ and includes Russia, agreed in principle to reduce output by an additional 500,000 barrels per day.
But as day two of meetings in Vienna kicked off Friday, there were still many questions, including how the quota would be allocated, and how long the agreement would stretch for. Friday's meeting followed a tumultuous and marathon session Thursday. Talks stretched on for hours, and the customary press conference held after the meeting wraps was abruptly cancelled.
The duration of the deal was one of the key unknowns. On Friday OPEC said it would meet again on March 5-6. The cartel typically meets every six months, so the announcement had led some on the Street to believe the increased cut would only extend through the first quarter.
"It remains unclear what would occur in 2Q20, potentially reflecting Saudi's new stance that they could walk away from this deal if other countries did not comply fully," Goldman Sachs analyst Damien Courvalin said in a note to clients Thursday.
Another key factor was compliance. Currently several members including Iraq, Nigeria and Russia are over-producing. Saudi Arabia, on the other hand, exceeds its current target cut, and signaled ahead of OPEC's meeting that stricter rules should be implemented.
"The Saudi message is compliance," Mizuho managing director Paul Sankey said in a note to clients Friday.
The deeper-than-expected cut might not have all that much of an impact on oil prices, however, since ahead of Thursday's meeting OPEC+, as a whole, was not even pumping as much as allotted.
"While we await full details from OPEC and non-OPEC, we think a 0.5MMbls/d announced cut relative to existing quotas is just enough to keep markets balanced for 2020," Bernstein analyst Neil Beveridge said Friday. "Overall, a satisfactory outcome but investors will likely want to see evidence cuts are being delivered before getting too excited."
Russia had also reportedly asked that condensates no longer be quoted as part of output for countries, a move which would reduce the total impact of the cuts.
"Everyone's starting to do math. Between the condi [condensates] exemption and the current rate of over compliance, it's not really a new larger cut," Again Capital's John Kilduff said to CNBC Thursday.
- CNBC's Brian Sullivan, Patti Domm, Michael Bloom and Sam Meredith contributed reporting.