More nations to curb output, spurring market
Oil prices surged Monday after more oil-producing nations agreed to slash production, a move aimed at pushing the oversupplied oil market into balance, or even a deficit, to prop up a crude market that had been stuck in a two-year slump.
U.S. crude futures rose $1.33, or 2.58 percent, to $52.83 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained $1.36, or 2.5 percent, to $55.69 a barrel on London’s ICE Futures Exchange.
Over the weekend, a group of big oil producers outside of the Organization of the Petroleum Exporting Countries, including Russia, agreed to scale back their output by 558,000 barrels a day. That is on top of the cut of 1.2 million barrels a day agreed to by OPEC in late November. The total reduction represents almost 2 percent of the global supply.
The deal is viewed as a feather in the cap for Saudi Arabia, the oil cartel’s de facto leader. The market got an extra boost of confidence on reports that Saudi Arabia indicated that, if necessary, the kingdom may be willing to take a deeper cut than the 486,000-barrel cut it had agreed in the November meeting.
“It’s very important that they all got together,” said Shawn Reynolds, portfolio manager with the VanEck Global Hard Assets Fund. “I can’t remember the last time I’ve seen such sense of urgency” from OPEC.
The non-OPEC cuts, if carried out as described over the first half of 2017, would represent an unprecedented level of cooperation among oil-producing countries.
The bulk of the cuts — 300,000 barrels a day — have been pledged by Russia, which produces more crude oil than any other country.
Analysts also warned that compliance by the all of the parties remains a glaring downside risk, given these oil producers haven’t always been forthcoming about their production levels, despite their pledges to rein in output.
Another concern is how fast the U.S. shale producers will ramp up their production in a bid to benefit from the higher prices. SEB Markets analysts noted in a report that the number of oil rigs operating in the U.S. jumped by 21 last week — the biggest one week gain since July 2015, the analysts said. Six of those rigs were added in Colorado.