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London - 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 January 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 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 a barrel before trading at $49.48 on the New York Mercantile Exchange at 14:26. 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 to $52.59 a barrel on the London-based ICE Futures Europe exchange. The contract increased 7c 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 million barrels a day. Several non-members, including Russia, reached an accord in December to contribute a combined 600 000 barrels a day 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.”
Oil-market news:
Kazakhstan won’t automatically join an extension of the OPEC-led cuts and will discuss the nation’s level of participation at the May 25 meeting, Interfax reported citing Energy Minister Kanat Bozumbayev.
Rigs targeting crude in the US increased for a 17th week to 712, the highest since April 2015, Baker Hughes data showed on Friday. The number of working rigs has more than doubled from a 2016 low of 316 in May and is up more than 30% so far this year.
Money managers have cut their bullish Nymex WTI bets by 34 290 positions to 168 814, weekly CFTC data on futures and options show. Net-long positions on Brent fell by 41 879 lots to 280 678. Libya is ratcheting up oil output with less than two weeks to go before the OPEC meeting.
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