SINGAPORE”•Oil soared Monday following a landmark deal by Russia and other non-Opec producers to join the cartel in capping output, in a bid to end a stubborn global glut that has hammered prices.
Russia and 10 other states on Saturday said they will reduce their production by more than half a million barrels per day, the Organization of the Petroleum Exporting Countries announced.
The move marks the first time non-Opec members have reached an agreement since 2001, and follows a similar deal by Opec last month.
Opec members had agreed to collectively reduce output by 1.2 million bpd beginning in January.
West Texas Intermediate for January delivery rose as much as $3.01 to $54.51 a barrel on the New York Mercantile Exchange, the highest intraday level since July 6, 2015. The contract was trading at $54.10 at 15:14 p.m. in Singapore. Prices gained 3.5 percent over the previous two sessions to close at $51.50 a barrel on Friday.
Brent for February settlement jumped as much as $3.56 to $57.89 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $1.81 premium to February WTI.
“Opec and non-Opec’s signing of the production cut agreement over the weekend was clearly the catalyst, overlooking Saudi Arabia’s record high production in November,” said OANDA senior analyst Jeffrey Halley.
Opec kingpin Saudi Arabia also announced at the weekend that it will slash production beyond what was previously agreed in Vienna by Opec, providing an additional boost for prices.
“The country is also preparing a partial flotation of its crown jewel in 2018, the state-owned oil company Saudi Aramco, and that certainly serves as an incentive for the oil giant,” said IG market strategist Jingyi Pan.
Pan noted prices have hit their highest since February 2015 and any concerns about compliance have been put on a back burner.
Despite the spike, oil prices remain at about half their mid-2014 levels.
Saudi Energy Minister Khalid Al-Falih said Saturday the biggest crude exporter will “cut substantially to be below” the target agreed last month with members of Opec. Al-Falih’s comments followed a deal by eleven non-Opec countries including Mexico to join forces with the group and trim output by 558,000 barrels a day next year, the first pact between the rivals in 15 years.
Futures in New York have gained about 20 percent since Opec announced Nov. 30 it will cut production for the first time in eight years. Saudi Arabia, which led Opec’s decision in 2014 to pump at will, is leading efforts to take back control of the market. The Opec and non-Opec plan encompasses countries that pump 60 percent of the world’s crude, but excludes major producers such as the US, China, Canada, Norway and Brazil.
“This is a very powerful message that producers want to balance the market,” said Chris Weston, chief market strategist in Melbourne at IG Ltd. “As a statement of intent, this is about as bullish as it gets.”
“Assuming reasonable compliance levels, these cuts will be enough to push the market into deficit,” Neil Beveridge, a senior analyst at Sanford C. Bernstein in Hong Kong, said by e-mail. “This level of coordination is unprecedented.”
