Oil jumped to its highest level in more than two weeks after Saudi Arabian and Russian energy ministers stoked expectations that production cuts might be extended for as much as nine months.
Futures added as much as 3.8 percent in New York. While output curbs that started Jan. 1 are working, global inventories aren’t yet at the level targeted by OPEC and its allies, Saudi Energy Minister Khalid Al-Falih said Monday in Beijing alongside his Russian counterpart, Alexander Novak. The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, they said.
“When Saudi Arabia and Russia come out together it sends a very strong signal to the market,” Mike Wittner, head of commodities research at Societe Generale SA in New York, said by telephone. “With these two countries behind the extension of the accord, chances are very high that they will get all of OPEC behind it.”
Russia and Saudi Arabia, the largest of the 24 producers that agreed to reduce supply for six months, are reaffirming their commitment to the deal amid growing doubts about its effectiveness so far. An increase in Libyan output, together with a surge in North American production and signs of recovery in Nigeria, may undercut OPEC’s strategy to re-balance the market and prop up prices.
West Texas Intermediate for June delivery climbed $1.33 , or about 3 percent, to $49.27 a barrel at 10 a.m. Central time
on the New York Mercantile Exchange. Futures touched $49.66, the highest since April 28. Total volume traded was about 80 percent of the 100-day average.
Brent for July settlement arose $1.42, or 2.8 percent, to $52.26 a barrel on the London-based ICE Futures Europe exchange. The contract reached $52.63, the highest since April 21. The global benchmark crude traded at a $2.67 premium to July WTI.
Money managers cut their bullish Nymex WTI bets back to where they were before OPEC agreed to cut output, data from the U.S. Commodity Futures Trading Commission show. Money managers’ WTI net-long positions fell by 34,290 positions to 168,814, futures and options in the week ended May 9. Net-long positions on Brent fell by 41,879 lots to 280,678.
“The drop in net-length set the stage for the rally,” Tamar Essner, a New York-based energy analyst at Nasdaq Inc., said by telephone. “Nobody wants to be short going into the OPEC meeting.”
Extending the curbs at already agreed-upon volumes is needed to reach the goal of reducing global inventories to the five-year average, the energy ministers of the world’s biggest oil producers said in a joint press conference. They will present their position at a meeting of OPEC and other nations on May 25 in Vienna.
OPEC members agreed in November to cut output by 1.2 million barrels a day. Several non-members, including Russia, reached an accord in December to contribute a combined 600,000 barrels a day of reductions.
“Preliminary consultations show that everybody is committed” to the output agreement and no country is willing to quit, said Novak. “I don’t see reasons for any country to quit.”
Amid the cutbacks, U.S. production has risen to the highest level since August 2015. Output is poised to climb further in the months ahead as U.S. explorers stage the longest drilling ramp-up since 2011.
“This is bullish because they are going to extend the cuts longer than was expected,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone. “It’s also bullish for oil producers here. They will keep investing, drilling and building pipelines in the U.S.”