Oil jumps 2% on ex­pec­ta­tions of pro­duc­tion cuts

Tehran Times - - ENERGY -

Oil prices rose more than two per­cent on Tues­day, ex­tend­ing gains ahead of ex­pected out­put cuts by pro­ducer car­tel OPEC and a man­dated re­duc­tion in Cana­dian sup­ply.

Brent crude oil rose $1.55 or 2.5 per­cent to a high of $63.24 by 0955 GMT. U.S. light crude was $1.25 higher at $54.20.

Both bench­marks climbed around 4 per­cent on Mon­day af­ter U.S. Pres­i­dent Don­ald Trump and Chi­nese Pres­i­dent Xi Jin­ping agreed at a meet­ing of the Group of 20 in­dus­tri­al­ized na­tions (G20) to pause an es­ca­lat­ing trade dis­pute.

“The mar­ket seems pos­i­tively ori­ented fol­low­ing the G20 de­vel­op­ments and head­ing into the OPEC meet­ing on Thurs­day,” BNP Paribas com­modi­ties strate­gist Harry Tchilin­guirian told Reuters Global Oil Fo­rum.

“A com­mit­ment by Rus­sia to co­op­er­ate with Saudi Ara­bia and achieve an agree­ment at the next OPEC meet­ing has cer­tainly lifted spir­its,” he added.

The Mid­dle East-dom­i­nated Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries will meet on Thurs­day in Vi­enna to agree fu­ture out­put and will dis­cuss strat­egy with other pro­duc­ers out­side OPEC, in­clud­ing Rus­sia.

OPEC and its al­lies are work­ing to­wards a deal to re­duce oil out­put by at least 1.3 mil­lion bar­rels per day (bpd), OPEC sources have told Reuters, adding that they were still talk­ing to Rus­sia about the ex­tent of its pro­duc­tion cuts.

“We ex­pect OPEC to fol­low suit and agree to a pro­duc­tion cut in Vi­enna this com­ing Thurs­day,” U.S. bank Gold­man Sachs said in a note to clients.

“A cut in OPEC and Rus­sia pro­duc­tion of 1.3 bpd will be re­quired to re­v­erse the on­go­ing counter-sea­son­ally large in­crease in in­ven­to­ries.”

It added that it ex­pected a joint ef­fort by OPEC and Rus­sia to with­hold sup­ply to push Brent oil prices “above the mid-$60 per bar­rel level”.

Help­ing OPEC in its ef­forts to rein in emerg­ing over­sup­ply was an or­der on Sun­day by the Cana­dian prov­ince of Al­berta for pro­duc­ers to scale back out­put by 325,000 bpd un­til ex­cess crude in stor­age is re­duced.

OPEC’s big­gest prob­lem is surg­ing pro­duc­tion in the United States where out­put, mostly from its south­ern shale fields, has grown by around 2 mil­lion bpd in a year to more than 11.5 mil­lion bpd.

Bar­clays bank pointed out in a note to clients that oil pro­duc­tion in the state of Texas alone “reached 4.69 mil­lion bpd in Septem­ber, com­pared with Iraqi out­put of 4.66 mil­lion by our es­ti­mates”.

Iraq is OPEC’s sec­ond-big­gest oil pro­ducer, be­hind Saudi Ara­bia.

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