Oil extended gains following a third monthly advance after OPEC and Russia agreed to prolong production cuts through to the end of 2018 in their fight against a global supply glut.
Futures added 0.8 percent in New York after rising 0.2 percent Thursday. The nine-month extension was strengthened with the inclusion of Nigeria and Libya, two OPEC members originally exempted from the curbs. Oil stockpiles in developed countries are still 150 million barrels above a five-year average, leaving OPEC and its allies with more work to do, Saudi Arabia’s Energy Minister Khalid Al-Falih said Thursday.
Saudi Arabia and Russia displayed unprecedented unity in Vienna on Thursday with Al-Falih saying he and his Russian counterpart Alexander Novak stood “shoulder to shoulder.” The show of friendship sought to dispel fears flagged by Wall Street analysts about Moscow’s reluctance to keep its side of the bargain in the absence of an exit strategy for the deal. Still, the ministers will have their work cut out as their primary rival, the U.S., expanded output to another record last week.
“Yesterday’s meeting established a very firm confidence in the market that the cooperation between Saudi Arabia and Russia specifically and their agreement is no fly-by-night and it is here to stay,” said Bjarne Schieldrop, chief commodities analyst at SEB AB in Oslo. “The downside risk to oil prices was taken away last evening and a sub-$50 risk for Brent is now gone unless we have a global recession.”
West Texas Intermediate for January delivery was at $57.86 a barrel on the New York Mercantile Exchange, up 46 cents, at 12:09 p.m. in London. Total volume traded was about 17 percent below the 100-day average. Prices rose 10 cents to $57.40 on Thursday, capping a 5.6 percent gain for November.
Brent for February settlement climbed 62 cents to $63.25 a barrel on the London-based ICE Futures Europe exchange. The January contract expired Thursday after adding 46 cents, or 0.7 percent, to $63.57. The global benchmark crude was at a premium of $5.32 to February WTI.
U.S. oil production may climb by another 1 million barrels a day before the end of 2018 after the extension of the OPEC-led cuts, according to Barclays Plc. There is a “clear upside risk” to further output gains if current prices persist, the bank said. The nation pumped 9.68 million barrels a day last week, the highest level in more than three decades, according to government data.
Lukoil PJSC said it would stick to its existing oil-production quota after Russia agreed to extend its supply agreement with OPEC, but warned against letting crude prices rise too high. Iraq exported 3.5 million barrels a day of oil in November at $57.19/bbl on average, according to an emailed statement from the oil ministry. The operating rate at China’s independent refiners fell this week to 63.91 percent, the lowest since Oct. 27, according to data provided by industry researcher SCI99. OPEC and its partners’ pledge to be “agile and responsive” and review their progress on shrinking inventories at a meeting in June indicates a reduced risk of both unexpected increases in supply as well as excess draws in stockpiles, according to Goldman Sachs Group Inc.