Oil sustained its rise above $60 a barrel on Monday as expectations of an extension to Opec-led production cuts beyond March buoyed prices.
“The latest uptick can to a certain extent be attributed to further Saudi and Russian support for extending the supply cut,” noted analysts at JBC Energy.
Saudi Arabia’s crown prince Mohammed bin Salman said on Saturday the kingdom “affirms its readiness” to back an extension of supply curbs by global producers into 2018.
His comments followed remarks in recent weeks by Opec and Russian officials calling on some of the world’s biggest producers, inside and outside the cartel, to prolong the cuts and active management of the oil market until the end of 2018.
Global producers seek an end to a three year oil downturn that has crushed the economies of resource-rich nations and hammered the budgets of oil and gas companies which have cut back on investments into future production.
But prices had already found support late last week, with Brent crude oil rising to its highest price in more than two years on Friday as the market reflected signs of a shrinking crude surplus.
Hedge funds and other money managers have amassed a near record net long position in crude futures and options, indicating that they see oil prices shifting to a slightly higher price range.
“We think the move reflects the start of a widespread re-evaluation by traders of global balances and the pace of inventory draws,” said Paul Horsnell at Standard Chartered.
Stephen Brennock, at London-based broker PVM, said not only have supply curbs by some of the world’s biggest oil producers — which came into effect in January — helped give oil a boost, but so have “geopolitically-fuelled” disruptions in the Middle East and a lull in US drilling activity.
Oil exports via pipeline to Turkey from the Kurdish region in northern Iraq have resumed after a halt earlier on Monday, but the development only underscores the uncertainty around crude sales from Opec’s second-biggest producer.
And while a rebound in prices has spurred US shale oil output, some market participants question how much it can grow as companies shift their focus towards profitability, not just production volumes.
“Demand considerations have attracted relatively little attention,” Mr Brennock added. “Yet they have also played their part in hastening the rebalancing process.”
The IEA said demand is growing by 1.6m barrels a day this year, almost double the amount it was growing in the period when oil was above $100 a barrel between 2011 and 2014.
Global economic activity has accelerated and lower oil prices have also driven more crude purchases. As consumption offsets production, Opec is quickly closing in on its target to reduce oil inventories in industrialised nations to their five-year average.
The international Brent benchmark reached a high of $61 a barrel on Monday before retreating to $60.61 a barrel in afternoon trading. West Texas Intermediate, the US marker, hit $54.46 a barrel before easing to $54.07 a barrel.
Consultancy Energy Aspects has also said the easing of US rules, now allowing for more exports of crude in recent months, has only caused a tighter domestic market as refiners were forced to process more crude for use at home.
This shows “just how strong current fundamentals are,” they said. “Brent at $60 is undoubtedly justified.”
Source: www.ft.com
