Oil gains on Saudi-Russia pact and Canadian cut

SEOUL: Oil headed for its biggest two-day advance since June as concerns over a supply glut eased on hopes that the Organisation of the Petroleum Exporting Countries (Opec) and its allies will strike a deal to stabilise the market.

Futures in New York rose as much as 1.3%, extending Monday’s 4% gain. An agreement between Saudi Arabian Crown Prince Mohammed Salman and Russian President Vladimir Putin over the weekend raised the possibility of an output accord when Opec and its partners meet in Vienna on Dec 6. Prices also received a boost after Canada’s Alberta province announced plans to cut production by 325,000 barrels a day.

Crude is rebounding from the worst monthly drop in a decade on growing optimism the world’s top oil exporters will tackle the risk of a glut. Still, Moscow and Riyadh have yet to agree on details, including the size of potential output cuts. A US-China trade truce also sparked bullish sentiment across global markets, pulling the American benchmark out of “oversold territory” for the first time in almost a month.

“Even if Russia shows a willingness to refrain from ramping up production, that’s a positive sign for Saudi Arabia and the rest of Opec,” Kim Kwangrae, a commodities analyst at Samsung Futures Inc, said. “Oil’s also getting a boost from the easing trade tensions between America and China, as well as Canada’s output cuts which will lift Western Canadian Select’s discount to the US marker.”

West Texas Intermediate (WTI) for January delivery rose as much as 66 cents to US$53.61 a barrel on the New York Mercantile Exchange, and was at US$53.52 at 12:43 pm in Seoul. Futures jumped US$2.02 to close at US$52.95 on Monday. Total volume traded yesterday was about 12% above the 100-day average.

Brent for February settlement gained 59 cents to US$62.28 a barrel, after closing at US$61.69 on London’s ICE Futures Europe exchange on Monday. Technical indicators are showing a bearish cloud is still hanging over prices, with the 50-day mov- ing average having fallen below the 200-day average, arriving at what’s known as the death cross. The global benchmark crude was at an US$8.58 premium to WTI for the same month.

While the Joint Technical Committee, which met on Monday, is said to have made no recommendations for the Vienna meeting on supplies, another Opec advisory body said last week a production cut of 1.3 million barrels a day is needed to balance the market in 2019. On Sunday, group president and the United Arab Emirates Energy Minister Suhail Al Mazrouei said he was optimistic Opec and its allies will reach an accord.

Alberta’s plan to mandate Opecstyle output curbs further eased fears of a glut. The unprecedented step to ease a crisis in the Canadian energy industry will reduce production of raw crude and bitumen by 8.7% starting in January until the levels of excess oil in storage are drawn down. The cut would then drop to 95,000 barrels a day until the end of next year at the latest. — Bloomberg