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Oil ETFs Gain on OPEC’s Larger-Than-Expected Production Cut

This article was originally published on ETFTrends.com.

Oil exchanged-traded funds (ETFs) gained after lengthy Organization of the Petroleum Exporting Countries (OPEC) discussions finally came to a conclusion, resulting in a larger-than-expected production cut that sent oil prices higher on Friday.

OPEC and associated partners agreed to cut 1.2 million barrels per day with OPEC being responsible for 800,000 barrels. The latest production cut came as a surprise to many oil analysts as initial estimates were slated at 1 million barrels per day and 650,000 barrels per day for OPEC.

“Given how much expectations were down played around the outcome of this meeting, this result comes as a welcome surprise,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas. “OPEC has given the oil market a rudder that appeared largely absent yesterday.”

Both WTI and Brent crude were over 4 percent higher, which saw oil-focused ETFs benefit. Three of the largest oil ETFs were higher on Friday--United States Oil (NYSEArca: USO)--up 3.93 percent,  SPDR S&P Oil & Gas Exploration & Production ETF (XOP) --up 1.89 percent and  VanEck Vectors Oil Services ETF (OIH) --up 2.12 percent.

Russia, though a non-OPEC member, has emerged as a major player in the negotiations, particularly when discussions got tense between rivals Saudi Arabia and Iran.

“OPEC, or more precisely Saudi Arabia, has been the head honcho of the oil world for nearly six decades; yet these days it seems unable to make a decision without Russia’s blessing, let alone without risking the wrath of the U.S. president,” said Stephen Brennock, an analyst at PVM Oil Associates in London.

Oil producers will utilize output levels from October as the baseline level for cuts while the final deal will be reviewed in April. Final numbers are still under discussion, but according to a delegate familiar with the deal, Russia proposed a 2 percent reduction using that October output level as the baseline metric--the cut would then be equivalent to 228,000 barrels per day, which exceeds the initial cuts of 150,000 barrels per day.

Since 2016, OPEC's negotiation landscape has changed dramatically with Russia and Saudi Arabia putting aside their differences and now, together, exerting their influence over production discussions.

“I’m confident that our resolve, that our professionalism and our willingness to achieve results is as strong as ever,” Russian Energy Minister Alexander Novak said of the so-called OPEC+ coalition. “In current conditions it’s extremely important to send a strong signal to the market.”

Related: Oil ETFs Retreat Ahead of OPEC Meeting

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