Saudis, Russia consensus lifts oil prices
london — Oil hit its highest in more than three weeks on Monday, topping $52 a barrel after Saudi Arabia and Russia said that supply cuts need to last into 2018, a step towards extending an OPEC-led deal to support prices for longer than first agreed.
Energy ministers from the two countries said on Monday that supply cuts should be prolonged for nine months, until March 2018. That is longer than the optional six-month extension specified in the deal.
Brent crude, the global benchmark, had risen $1.45 to $52.29 a barrel by 1405GMT and traded intraday at $52.63, the highest since April 21. US crude was up $1.46 at $49.30 a barrel.
Oil traders were surprised by the strong wording of the announcement, although it remained to be seen whether all countries participating in the deal would agree with the Saudi-Russian stance. Some analysts doubted producers would stick to a prolonged curb.
“Extending the cuts until March 2018 would take account of the fact that demand in the first quarter of a year is lowest for seasonal reasons,” said Carsten Fritsch, analyst at Commerzbank. “That said, we are sceptical about Russia’s willingness to actively participate in any extended cuts.”
The Opec, Russia and other producers originally agreed to cut output by 1.8 million barrels per day in the first half of 2017, with a possible six-month extension.
Oil has gained support from the supply deal but inventories remain high and output from other producers such as the United States is rising, keeping prices below the $60 that Saudi Arabia would like to see. The ministers said they hoped other producers would join the supply cut, which would initially be on the same volume terms as before. Kazakhstan, however, said it could not join a prolonged cut on the same terms.
“When the two biggest oil producers of the world reach a consensus on the extension of a supply cut the market will listen,” said Tamas Varga of oil broker PVM in a report, of the rise in prices on Monday.
“Rhetoric is doing its job but this must be backed by action in less than two weeks’ time.”
Ministers from Opec and the nonOpec states meet to decide policy on May 25 in Vienna, and Opec has also invited two small producers not involved in the original deal, Egypt and Turkmenistan, to attend. — Reuters