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Oil prices surge after surprise Opec cut

US light crude CLc1 was trading $1.17 a barrel firmer at $28.30 a barrel, while London benchmark Brent futures LCOc1 gained $1.26 to $26.78. "I think it is very bullish for oil prices," said Gary Ross of New York consultancy PIRA Energy of the Opec deal. "The hedge funds are short and they will be running for cover." "There would have to be a cut sooner or later if Opec was not going to be looking at a very serious threat to the bottom of its price range," said oil analyst Kevin Norrish of Barclays Capital. "But they are acting a little bit earlier than most people thought."

Oil futures had been falling steeply since the start of the month, taking levels down to four-month lows, but prices have not fallen much below the mid-point of Opec's $22-$28 a barrel price range for an index of crudes.

Yesterday's decision also rippled through stock markets as energy shares rallied, but overall market sentiment was subdued on fears higher energy costs could curb consumer spending and hamper economic recovery.

"I don't think it's a major negative given the improving economic outlook, but on the margin when you have higher oil prices, it could crimp consumer spending," said Rich Nash, chief market strategist at Victory Capital Management in Cleveland, the United States. Oil analysts said the extent of any supply tightness during winter in the northern hemisphere would depend very much on the weather and also the recovery of supplies from Iraq.

Exports from Iraq have been running at less than one million barrels a day, according to shipping sources, less than half pre-war levels. Future supplies are very hard to predict as Iraqi supplies have been repeatedly disrupted by sabotage and other infrastructure problems.