Oil futures surged above $100 a barrel Wednesday after the Organization of Petroleum Exporting Countries said it would leave production quotas unchanged.
Light, sweet crude oil for July delivery settled up $1.65, or 1.7%, to $100.74 a barrel on the New York Mercantile Exchange. Brent crude oil on the ICE futures exchange, which has held above $100 since February, settled up $1.07, or 0.9%, to $117.85 a barrel.
OPEC's decision came as a surprise to oil-market participants, who had widely expected the group to boost its output ceiling in response to triple-digit oil prices and projections for robust economic growth in the second half of the year.
"The outcome was unexpected," said Alexander Poegl, head of business development at the Vienna consultancy JBC Energy. "They communicated that OPEC--not Saudi Arabia but OPEC itself--wants to deviate from the $70-to-$90 price, that they are OK with $100 a barrel."
Gulf states led by Saudi Arabia, the world's top exporter, had been pushing a plan to raise OPEC production quotas by 1.0 million to 1.5 million barrels a day. However, some member nations, including Iran and Venezuela, had opposed an increase, saying supplies are sufficient.
Traders quickly pushed prices above the $100 level following the decision, though Nymex crude still remains well below the recent high near $115 a barrel reached in early May.
Despite Wednesday's rally, the longer-term impact of the impasse is uncertain. Since OPEC members are widely believed to be producing above their allotments, market participants are more concerned with actual production levels than formal quotas.
Already, hints have emerged that Saudi Arabia may unilaterally raise production. Following the meeting, Saudi Oil Minister Ali Naimi said Gulf Countries "will meet market demand" regardless of OPEC's decision. Two Gulf source told Dow Jones Newswires that Saudi Arabia plans to immediately boost output to as much as 10 million barrels a day from roughly 9 million currently.
"The Saudis said before the meeting that they'll do whatever they have to do to add supply to this market. And they will," said Tom Bentz, director of BNP Paribas Commodity Futures in New York.
The body could still reach an agreement on quotas in the coming months. Iranian oil minister and OPEC President Mohammad Aliabadi said he would call an emergency before the next scheduled gathering in December in Vienna.
"I think [Saudi Arabia] will find some kind of agreement, an implicit agreement at least," Poegl said. "I don't think they want to risk to risk the functionality of OPEC itself."
Separately, a much larger-than-expected decline in U.S. crude-oil inventories Wednesday also helped to keep prices elevated. Stockpiles fell 4.8 million barrels last week, the U.S. Department of Energy said.
The data were expected to show a more modest 400,000-barrel decline, according to a Dow Jones survey of analysts.
Gasoline stockpiles rose by 2.2 million barrels, while distillate inventories increased by 800,000 barrels. Both increases were larger than expected.
Front-month July reformulated gasoline blendstock, or RBOB, settled down 1.32 cents, or 0.4%, to $2.9787 a gallon. July heating oil settled up 1.67 cents, or 0.5%, to $3.0937 a gallon.