Brent crude near two-year high as Saudi prince backs OPEC cuts

By Grant Smith on 10/27/2017

LONDON (Bloomberg) -- Brent oil traded near the highest level in more than two years as Saudi Arabia’s Crown Prince Mohammed bin Salman backed the extension of OPEC-led output cuts.

Futures slipped 0.6% in London, paring the weekly gain to 2.1%. The prince said Thursday that “of course” he wanted to prolong the curbs beyond the end of March 2018. OPEC is considering an exit strategy to avoid flooding the market once the agreement finally expires, people familiar with the talks said this week. Total’s CEO Patrick Pouyanne said the imbalance between crude supply and demand is finally dissipating.

Brent has gained as speculation mounts that OPEC will agree at its Nov. 30 meeting to extend cuts made in tandem with allied nations intended to drain a global glut. Oil ministers from Saudi Arabia and Russia will meet Nov. 2 to discuss prolonging the deal, Russian Energy Minister Alexander Novak said Tuesday. Stronger demand will help cut stockpiles this year for the first time since prices slumped in 2014, the IEA said earlier this month.

“Oil remains buoyed by the solid global growth backdrop and the bullish market mood,” said Norbert Ruecker, head of commodity research at Julius Baer Group in Zurich.

Brent for December settlement was at $58.92/bbl on the London-based ICE Futures Europe exchange. Prices rose 1.5% to $59.30 on Thursday, the highest close since July 2015. Brent traded at a premium of $6.57 to WTI.

WTI for December delivery lost $0.28 to $52.36/bbl on the New York Mercantile Exchange. Total volume traded was about 41% below the 100-day average. The contract gained $0.46 to close at $52.64 on Thursday, the highest since April. Prices are up 1.7% this week.

Prince Mohammed said in an interview with Bloomberg that prolonging the cuts would bring benefits for both OPEC and non-OPEC producers. His comments, which follow Russian President  Vladimir Putin’s provisional backing to an extension, signal that Riyadh and Moscow are ready to prolong their collaboration to reduce oil supply and lift energy prices.

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