Oil rebounded as much as over $1 yesterday from a five-month low, after Opec agreed to a small but unexpected production cut that some analysts said showed their resolve to keep prices above $100 a barrel.
The Organisation of the Petroleum Exporting Countries said it had agreed to revise its complex output targets, which its president said meant reducing supply by about 520,000 barrels per day (bpd) versus July over the next 40 days.
Most analysts had expected the producer cartel to maintain formal targets at its meeting in Vienna, although some had suggested they could tighten compliance to help stem a near 30 per cent slump in oil prices since July.
US crude for October delivery surged more than $1 early in the day, but by 0556 GMT stood 46 cents higher at $103.72 a barrel, having touched a five-month low of $101.74 on Tuesday.
London Brent crude rose 26 cents to $100.60, after falling below $100 on Tuesday for the first time since April.
"Since the market is over-supplied, the conference agreed to abide by September 2007 production allocations (adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq), totalling 28.8 million bpd," the group said in a communique after a nearly five-hour meeting.
Opec President Chakib Khelil warned that he still saw surplus oil supply building on the market by the end of the year. Analysts said the group had sent a clear message to markets, which had been battered by a recovery in the US dollar and a darkening economic outlook that has spurred an exodus of investment funds from the whole commodities complex.
"It certainly shows that Opec is not afraid to defend a $100 price level," said Jonathan Kornafel, Asia director at US -based options trader Hudson Capital Energy.
The calculations of the new target were complicated by the inclusion of new members and the removal of Indonesia, which asked that its membership be suspended. Some analysts questioned whether the cuts would fully materialise without details on which countries would be expected to curb supply.
But others said the fact Opec chose to make its decision explicit - rather than merely agreed to tighten compliance with existing limits - was significant.
"We think this is a serious deal for a real cut... In this market, direction matters and this is a turn," UBS economist Jan Stuart said in a report.
But the risks to global oil demand posed by high prices and endangered economic growth still loomed large, threatening to undermine a rally that has lifted prices from $20 since 2002.