Oil prices gain after Opec extension of output cut

Saudi Arabia's Oil minister Khalid al-Falih speaking at a news conference following the Opec meeting in Vienna on Thursday. With him are Russian energy minister Alexander Novak (left) and Opec secretary-general Mohammed Barkindo.
Saudi Arabia's Oil minister Khalid al-Falih speaking at a news conference following the Opec meeting in Vienna on Thursday. With him are Russian energy minister Alexander Novak (left) and Opec secretary-general Mohammed Barkindo.PHOTO: BLOOMBERG

US and Brent crude up with expected move aimed at ending glut in global supplies

TOKYO • Oil futures rose yesterday after Opec and other major producers agreed to extend their production curbs in a widely expected move aimed at ending a persistent glut in global supplies.

The Organisation of the Petroleum Exporting Countries and non-Opec producers led by Russia on Thursday agreed to maintain the output cuts until the end of next year, while also signalling a possible early exit from the deal if the market overheats.

US crude futures were up 17 US cents, or 0.3 per cent, at US$57.57, as of yesterday afternoon. Brent February crude futures rose 24 US cents to US$62.87.

Analysts had earlier said the nine-month extension was already priced in.

Over last month, Brent rose about 3.6 per cent and US West Texas Intermediate crude gained about 5.6 per cent as traders pushed up prices in anticipation of the cuts being extended past their scheduled expiry in March.

Gains are likely to be muted as inventories need to be cut further, said an official from a Japanese refiner.

Idemitsu Kosan director Kiyoshi Homma said: "Oil prices are likely to hover around current levels till next June, when stockpiles would be optimised through continued production cuts, but the market will likely tighten after that."

The deal cuts 1.8 million barrels a day (bpd) from the market to tackle oversupply and bolster prices.

Saudi Oil Minister Khalid al-Falih said it was premature to talk about exiting the cuts at least for a couple of quarters as the world was entering a season of low winter demand.

He said Opec would examine progress at its next regular meeting in June next year.

Opec and Russia together produce over 40 per cent of global oil. Moscow's first real cooperation with Opec, put together with the help of President Vladimir Putin, has been crucial in roughly halving an excess of global oil stocks since January.

Opec is showing "a strong commitment to normalising inventories and also to remain data dependent, which reduces the risk of both unexpected supply surprises and excess stock draws", Goldman Sachs said in a note.

Russia had been pushing for a clear path to exit the cuts and avoid a rally in prices that would only fuel more drilling in the United States, which is not a party to the agreement.

Rising US production helped fuel a slump in prices, starting in 2014, and shale oil drilling has picked up as prices rose, undermining the Opec and non-Opec output cuts.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 02, 2017, with the headline 'Oil prices gain after Opec extension of output cut'. Print Edition | Subscribe