Oil Soars on Optimism Over OPEC Deal

Crude futures surged Wednesday on reports that OPEC plans to reduce its output by more than 1 million barrels a day, a cut that many market participants say could be significant enough to push oil supplies below demand levels sooner than expected.

Delegates from members of the Organization of the Petroleum Exporting Countries are discussing a deal in Vienna that would cut production to 32.5 million barrels a day from 33.6 million, according to people familiar with the matter.

That would represent a reduction of about 1% of global output. The group is still trying to resolve a dispute raised by Iraq over how each country's oil production is calculated, they said.

A breakthrough would come after months of on-and-off-again negotiations that made many traders doubt an agreement could be reached. As recently as Tuesday, oil prices tumbled on market skepticism that clashing OPEC members and other major oil producers could come together on a meaningful deal.

Many analysts continue to doubt that if a deal were struck it would be properly enforced or would even be enough to address a supply imbalance that has pressured this market for more than two years. Market participants are awaiting additional details that could determine how credible the cartel's agreement might be.

U.S. crude futures climbed $3.32, or 7.3%, to $48.55 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose $3.79, or 8.2%, to $50.17 a barrel on London's ICE Futures Exchange.

OPEC's intervention could accelerate the realignment of supply and demand, which have been out of sync for more than two years amid a global glut of oil.

There are still unanswered questions about the agreement. Historically it has been notoriously difficult to ensure that OPEC's members are sticking to agreed-upon production levels, and in recent months members like Iran and Iraq have insisted that they wanted to continue pumping at full tilt.

The group is still trying to resolve a months-old dispute about the data being used to calculate how much Iraq is pumping, say people familiar with the matter. That could determine how much that country will be allowed to produce under the terms of any deal.

The degree to which Russia will participate is also unclear. Russia isn't a member of OPEC but has discussed freezing or trimming its output in coordination with the group.

OPEC's production has ramped up recently as members jockeyed for position in negotiations. The International Energy Agency has said OPEC production rose to a record 33.8 million barrels a day in October, with countries including Iraq, Saudi Arabia, and Kuwait pumping at or near all-time highs. OPEC has said its production increased by 240,000 barrels a day in October to average 33.64 million barrels a day.

If OPEC does reach a deal, the cuts outlined Wednesday could help push forward the arduous rebalancing process by as much as six months -- saving beleaguered energy producers two more quarters of pain, analysts say.

Goldman Sachs said Tuesday that oil markets will likely shift into a deficit -- with demand outpacing new production -- by the second half of next year even if OPEC members keep pumping. Even a relatively modest cut to OPEC's output could speed that along by six months if Russia also agrees to hold its production steady, the analysts said.

"The markets are getting closer to rebalancing. It's just that if they did agree to cut production, it would get the market through the first half of next year with significantly less of an oversupply," said Ann-Louise Hittle, a senior oil market expert at Wood Mackenzie, a consulting firm, said Tuesday.

But OPEC isn't the only game in town. Countries outside the cartel now account for about 58% of the world's total output, and producers around the world have opened the taps in recent months. Global production rose 800,000 barrels a day in October, to 97.8 million barrels a day, according to the IEA. Russian oil production has increased by 500,000 barrels a day in September and October, so even if it agrees to freeze output it will do so at record high levels.

U.S. producers would likely also be quick to strike if prices were to increase, bringing more supplies online. The U.S. rig count has increased steadily in recent months, suggesting that companies could soon begin pumping more oil.

"If OPEC does not come to a deal on supply, we see the oil market surplus extending through 3Q17 because U.S., Brazilian, and Kazakhstan supplies are set to rise sequentially throughout next year," analysts at Bank of America Merrill Lynch wrote earlier this month.

Write to Alison Sider at alison.sider@wsj.com and Sarah McFarlane at sarah.mcfarlane@wsj.com