Trading volumes of Brent crude oil futures pulverised records on Thursday after some of the world’s top producers on Wednesday struck a deal to cut output for the first time since 2008, seeking to bolster prices stuck at historically modest levels.
The scale of the planned cut by OPEC and Russia – 1.5 million barrels per day in total – was at the top of expectations, sending Brent crude futures for the second-front month delivery, which on Wednesday meant February, surging to more than 780,000 lots of 1,000 barrels each.
The lots were equal to a combined $39bn in value – more than eight times the whole world’s daily consumption of crude oil – and volumes easily beat a previous record of just over 600,000 reached in September when OPEC first suggested an output freeze.
“I don’t think (the market) had priced in how committed OPEC turned out to be at the very last minute to getting something over the line which I think caused a surge in trading volumes,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA.
The deal between the Organization of the Petroleum Exporting Countries (OPEC) and Russia, pushed Brent prices back above $50 per barrel, to $52.13 per barrel at 0804 GMT.
Traders taking profits against call options bought earlier in the week also lifted volumes, Halley said. March expiry Brent traded 288,640 lots of 1,000 barrels each, compared with a previous record of 228,700 lots done in July 2014 just as crude oil began to collapse from above $100 a barrel.
Halley added that the surge in crude oil prices on Wednesday provided producers of U.S. shale oil the opportunity to hedge their future output.
“With the financing changes that (U.S. shale producers) have to undergo now, they have to hedge quite a proportion of their future production in order to get the financing they need,” Halley said.
The soaring Brent volumes also meant that the international crude futures benchmark challenged volumes of U.S. crude trading, historically much higher.
The equivalent contracts for U.S. West Texas Intermediate (WTI) crude futures had records of 796,240 lots of 1,000 barrels, reached in April this year, and of 288,460 lots completed in February 2011, respectively.
While the OPEC output cut has had an immediate effect on prompt crude oil futures, the biggest price impact will be in contracts for delivery in early 2017, especially the February contract, rather than in the spot market.