Oil rises as Russia and OPEC said to reach outline deal on cuts

By Robert Tuttle on 11/24/2017

CALGARY (Bloomberg) -- Oil advanced to a fresh two-year high as OPEC and Russia were said to have crafted the outline of a deal to extend their oil production cuts to the end of next year.

Futures gained as much as 1.6% in New York. After days of talks, Moscow and Riyadh now agree on the need to announce an additional period of cuts at the Nov. 30 meeting, although both sides are still hammering out crucial details, according to people involved in the conversations. Moscow had been hesitating over the need for an extension because the current deal doesn’t expire until the end of March.

“Russia has been scared of higher prices and has been sort of unwilling to commit to a nine month” extension of cuts, Sam Alderson, analyst at Energy Aspects Ltd., said in a phone interview from London. Oil market strength comes from “the more positive signs from Russia.”

The U.S. benchmark settled above $58/bbl for the first time since mid-2015 this week on heightened optimism that the Organization of Petroleum Exporting Countries and its allies will agree to prolong cuts at a Nov. 30 meeting in Vienna. Prices are up more than 8% in November, heading for a third monthly gain in what would be their longest winning streak since May last year.

“Everyone is in favor of extending the deal to reach its final goals, Russia also supports these proposals,” Energy Minister Alexander Novak told RBC TV.

WTI for January delivery was at $58.70/bbl on the New York Mercantile Exchange at 11:05 a.m. in New York, up 68 cents. The contract added $1.19 to $58.02 on Wednesday. There was no settlement Thursday because of the Thanksgiving holiday in the U.S. and all transactions will be booked Friday.

Brent for January settlement climbed 9 cents to $63.64/bbl on the London-based ICE Futures Europe exchange. Prices rose 23 cents to $63.55 on Thursday. The global benchmark crude traded at a premium of $4.94 to WTI.

Prices also strengthened as the shutdown of TransCanada Corp.’s Keystone pipeline entered its second week. The line that was shut on Nov. 16 after an oil spill carries Canadian crude to Cushing, Okla., the pricing point for West Texas Intermediate futures.

The breakdown pushed prices of the front-month contract higher than the second month, known as backwardation. The last time the WTI futures curve consistently displayed this pattern was in 2014.

U.S. crude inventories declined to about 457.1 million in the week ended Nov. 17, according to the Energy Information Administration. Stockpiles at Cushing, Okla., dropped by 1.83 MMbbl to 61.2 million, the largest draw since July. Meanwhile, American production gained for a fifth week to 9.66 MMbpd.

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