New York: Oil prices closed at its highest in more than two years in London, nearing $60 a barrel, as Saudi Crown Prince Mohammed bin Salman backed the extension of the Organization of Petroleum Exporting Countries (Opec) output cuts.
Brent, the global crude benchmark, rose 1.6%. Prince Mohammed said in an interview that “of course" he wanted to extend Opec’s production cuts beyond March 2018. His comments follow President Vladimir Putin saying Russia is open to extending the deal to the end of next year.
“Saudi has stayed consistent with its desire to extend the production cuts, and continue the gradual erosion of global crude inventory," Michael Hiley, head of over-the-counter energy trading at New York-based LPS Partners, said.
Mounting signs that Opec and its allies may agree to extend the output-reduction deal at a meeting in Vienna later next month have helped US oil hold above $50 and Brent above $55 for most of this month.
“The Opec story is definitely supportive. You’ve got to say they have earned back the market’s respect. They have gained credibility by compliance," Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago, said by telephone. Yet the bearish argument is that the “shale oil producers are going to raise production. There are still some doubts in the market."
Brent for December settlement rose 86 cents to end the session at $59.30 a barrel, the highest since June 2015, on the London-based ICE Futures Europe exchange. The global benchmark traded at a premium of $6.66 to West Texas Intermediate (WTI).
WTI for December delivery added 46 cents to settle at $52.64 a barrel, the highest since April, on the New York Mercantile Exchange. Total volume traded was about 18% below the 100-day average.
In a sign that international supplies are tightening with Opec’s cuts, the front-month Brent contract has traded higher than futures for any other month, a structure known as backwardation that signals rising demand for prompt deliveries.
“The forward structure of the market, with increasing backwardation, illustrates that the plan is working.," Hiley said.
In the US, on the other hand, crude output rose by the most since 2012 last week as shale producers reap the results of a drilling ramp-up that started in May of last year. While they’ve started to reduce the number of oil rigs lately, many drilled wells are yet to be fracked and start producing, meaning output is still set to rise. That may limit the scope of oil’s rally in New York.
“We’re stuck in the $50-$55 range," Jay Hatfield, a New York-based portfolio manager at the InfraCap MLP exchange-traded fund, said by telephone. Next year, prices may break above $55 a barrel, but “we see it as a running game, not a passing game. It’s going to slowly grind higher." Bloomberg