More na­tions to curb out­put, spurring mar­ket

The Denver Post - - BUSINESS - By Dow Jones Newswires

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.

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