Following a statement from energy ministers in Russia and Saudi Arabia saying that the OPEC-led agreement to cut oil output should be extended until March 2018, oil jumped to its highest level in two weeks.
The ministers agreed that the deal should be extended another nine months into the first quarter of 2018 at the same volume of reductions.
Will Yun, a commodities analyst at Hyundai Futures, said: “The market is certainly reacting to comments from Saudi Arabia and Russia’s ministers, and it should help at least maintain current prices. However, we’ll see whether the rebound remains until the US market opens. It could be short-lived and may not be able to boost prices anywhere above $60 or $70.”
Despite their doubts over its effectiveness, the two major oil suppliers have agreed to reduce their output for six months.
This agreement was initially planned in November where OPEC members agreed to cut output by 1.2 million barrels a day. Russia, who is not a member of OPEC, agreed in December to cut production by 600,000 barrels.
However, Libya have increased output and North America have also surged in production, which is likely to undercut OPEC’s strategy to re-balance the market and prop up prices.
“Preliminary consultations show that everybody is committed to the output agreement and no country is willing to quit. I don’t see reasons for any country to quit.” said Novak.
Opec ministers will meet at the end of this month in Vienna, where they will discuss an extension of the deal into the first quarter of 2018. This is when the final decision will be made.
In New York, Futures added 2.2 percent and are on course for their highest close since 28 April.
West Texas Intermediate for June delivery climbed as much as $1.04 to $48.88 a barrel.
Brent (EPA:BRNTB) for July settlement added $1.04, or 2.1 percent, to $51.88 per barrel.