Oil jumps as Saudis, Russia favor extending output deal to 2018
LONDON (Bloomberg) -- Oil jumped to its highest level in more than two weeks after the Saudi Arabian and Russian energy ministers said they are in favor of extending a production-cut deal for nine months.
Futures added as much as 3.6% in New York. While output curbs that started Jan. 1 are working, global inventories aren’t yet at the level targeted by OPEC and its allies, Saudi Energy Minister Khalid Al-Falih said in Beijing alongside his Russian counterpart, Alexander Novak. The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, they said.
"While this announcement should allay some concerns in the market and lead to a short-covering rally, given the current bearish tint to sentiment, there is no guarantee of a sustained rally," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.
Russia and Saudi Arabia, the largest of the 24 producers that agreed to reduce supply for six months, are reaffirming their commitment to the deal amid growing doubts about its effectiveness. An increase in Libyan output, together with a surge in North American production and signs of recovery in Nigeria, may undercut OPEC’s strategy to re-balance the market and prop up prices.
West Texas Intermediate for June delivery climbed as much as $1.74 to $49.58/bbl before trading at $49.48 on the New York Mercantile Exchange at 1:26 p.m. in London. Total volume traded was almost double the 100-day average. The contract gained 3.5% last week.
Brent for July settlement added as much as $1.75, or 3.4%, to $52.59/bbl on the London-based ICE Futures Europe exchange. The contract increased 7 cents to $50.84 on Friday. The global benchmark crude traded at a premium of $2.67 to July WTI.
Extending the curbs at already agreed-upon volumes is needed to reach the goal of reducing global inventories to the five-year average, the energy ministers of the world’s biggest oil producers said in a joint press conference. They will present their position at a meeting of OPEC and other nations on May 25 in Vienna.
OPEC members agreed in November to cut output by 1.2 MMbpd. Several non-members, including Russia, reached an accord in December to contribute a combined 600,000 bp of reductions.
“Preliminary consultations show that everybody is committed” to the output agreement and no country is willing to quit, said Novak. “I don’t see reasons for any country to quit.”
