Oil rose 2.9 per cent after Russia’s energy minister asserted OPEC along with other producers may meet to go over output, paring earlier gains when OPEC delegates said no talks were planned.
Russian Energy Minister Alexander Novak said the level of a proposed cut would be a matter for discussion, Interfax reported. There aren’t any scheduled talks between Russia and OPEC, according to four delegates who asked to not be identified. The Organization of Petroleum Exporting Countries abandoned its output target last month, and Saudi Arabia has led the group in fighting for share of the market against higher-cost producers for example U.S. shale drillers.
“Without word in the Saudis this is just a lot of noise,” said Mike Wittner, head of oil-market research in Ny at Societe Generale SA. “One thing I am certain of is the fact that we’re not going to stay here about this news. If this turns out to be real, we’re going a lot higher, and when it isn’t, we’re heading back to US$26.”
Oil is down about 10 per cent this season as volatility in global markets adds to concern over brimming U.S. stockpiles and an expected Iranian export gain following the removal of sanctions. Saudi Arabia, the de facto leader of OPEC, has stated that output cuts are only able to happen with the cooperation of other producers.
West Texas Intermediate for March delivery increased 92 cents US to stay at US$33.22 a barrel on the New York Mercantile Exchange. It was the highest close since Jan. 7. Total volume traded was a lot more than double the amount 100-day average.
Brent for March settlement, which expires Friday, increased 79 cents US, or 2.4 per cent, to end the session at US$33.89 a barrel around the London-based ICE Futures Europe exchange. The more-active April contract rose 87 cents US to US$34.80. March Brent closed at a 67-cent US premium to WTI.
The Standard & Poor’s 500 Oil & Gas Exploration and Production Index advanced 2.8 per cent to the highest since Jan. 8.
Venezuela, OPEC’s most vulnerable member in the oil crash, has repeatedly requested an urgent situation meeting from the group to discuss production cuts, but others have rejected it.
“Obviously Ecuador, Venezuela, Nigeria and Algeria will be pleased to participate, but its doubtful that the Iraqis and Iranians will accept create a cut,” said Sarah Emerson, md of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. “Do you consider the Iranians would make a cut? And when they do not, there’s little likelihood the Saudis would accept one.”
Iran’s Oil Ministry gave directions to improve output by 500,000 barrels each day after international sanctions were lifted this month, the country’s news agency Shana said. The end of restrictions also opens the way in which for foreign investment into the world’s fourth-largest reserves of crude and biggest deposits of gas.
Rival Producers
Saudi Arabia recently cut ties with Iran after its embassy there is attacked in reaction towards the execution of the prominent Saudi Shia cleric.
“I’m skeptical about Saudi Arabia and Iran visiting any sort of agreement,” said Stephen Schork, president from the Schork Group Inc. in Villanova, Pennsylvania. “The marketplace doesn’t know how to react to these headlines.”
Saudi Arabia is open to any cooperation to ensure stability within the global oil market, said an OPEC Gulf delegate with knowledge of Saudi policy. Khalid Al-Falih, the chairman of state energy producer Saudi Arabian Oil Co., signalled last week in Davos, Switzerland, that the kingdom would persist with its policy of maintaining production.
Until this week, Russia, which relies on energy for more than 40 percent of its budget revenue, had repeatedly stated its goal of keeping oil production stable even as prices tumble. Russia’s oil output is placed to achieve a post-Soviet record of 10.89 million barrels a day in January, according to Bloomberg calculations based on Energy Ministry data.
“I’m not convinced that either Russia or Saudi Arabia reaches the breaking point, but we’ll discover,” Emerson said. “This really is existential to them.”
– With the help of Grant Smith.
Bloomberg News
