Oil climbed yesterday, approaching its highest level since the summer of 2015 a day after Opec and other major producers agreed to continue reining in output until the end of 2018 to try to reduce the global oil glut and boost prices.
The Organisation of the Petroleum Exporting Countries and some non-Opec producers led by Russia agreed on Thursday to keep current limits on output in place until the end of next year, although they signalled a possible early exit from the deal should the market overheat and prices rise too far.
Brent futures were trading at $64.17 a barrel by 10:51am EST (1551 GMT), with the new front month February up 60 cents, or 0.9%, from where the January contract expired on Thursday.
The lower priced February future, was up about 2.3% from where it closed in the previous session. US West Texas Intermediate crude (WTI) was up $1.33, or 2.3%, at $58.73.
WTI’s January contract does not expire till December 19.
In November, both oil benchmarks traded at their highest levels since June 2015 with Brent hitting $64.65 and WTI at $59.05.
They respectively gained 3.5% and 5.5% in the month.
Despite recent gains, Brent was on track to rise less than 1% for the week, while WTI was headed for a decline of less than 1%.
“The market is giving the Opec, non-Opec accord its due.
The Saudi oil minister came across as resolute and determined to see global crude oil inventories reduce,” said John Kilduff, partner at energy hedge fund Again Capital LLC in New York.
The deal, which has been in place since January and was due to expire in March, has seen producers reduce output by 1.8mn barrels per day (bpd), helping to halve global oil oversupply over the past year.
It has allowed Brent prices to return above $60 per barrel, recovering from lows of $27 per barrel hit in January 2016. But the price rise has also revived the spectre of the bull market of the last decade when Brent prices soared.
These concerns led Russia to stress the need for clarity on an exit strategy from the deal and to this end, a reference to a review process in June was included. “It leaves a question mark about the second half (of 2018) and about the commitment of Russian oil companies, which will be price dependent,” Petromatrix strategist Olivier Jakob said.
The chief executive of Russia’s top private producer Lukoil told Reuters he would like to see the price of oil stable at current levels, trading in the $60-65 per barrel range.
Price rises could also fuel more drilling in the United States, which is not party to the agreement, Russia warned.
Rising US production has been a thorn in Opec’s side, undermining the impact of its output curbs.
The market was awaiting US rig count data, an indicator of future production, later yesterday.
US oil production hit a new record of 9.68mn bpd last week, while on a monthly basis, it rose to its highest since 2015, growing to 9.5mn bpd in September, according to federal energy data going back to 2005.
On an annual basis, output peaked at 9.6mn bpd in 1970.
“Countries involved in the (Opec) deal... will keep a close eye on US oil production and will not shy away from taking appropriate steps to counter its impact,” said Abhishek Kumar, Senior Energy Analyst at Interfax Energy’s Global Gas Analytics in London.
Alexander Novak, Russia’s energy minister, listens during a news conference following the 173rd Opec meeting in Vienna on Thursday. The Opec and some non-Opec producers led by Russia agreed on Thursday to keep current limits on output in place until the end of next year, although they signalled a possible early exit from the deal should the market overheat and prices rise too far.
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