Oil surges as Saudis eye deeper production cuts

Non-Opec countries including Russia pledged to pump less next year

Oil jumped to the highest since July 2015 after Saudi Arabia signalled it’s ready to cut output more than earlier agreed while non-members of the Organisation of Petroleum Exporting Countries (Opec) including Russia pledged to pump less next year, strengthening the coordinated commitment by the world’s largest producers to tighten supply.

Futures rose as much as 5.8 per cent in New York and 6.6 per cent in London. Saudi Energy Minister Khalid Al-Falih said on 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.

 

Oil in New York has gained about 20 per cent since the Organization of Petroleum Exporting Countries (Opec) announced November 30 it will cut output 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 per cent of the world’s crude but excludes major producers such as the US, China, Canada 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. “As a statement of intent, this is about as bullish as it gets.”

West Texas Intermediate (WTI) 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 $54.19 at 7:50 am in London. Prices gained 3.5 per cent 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.

“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.” Oil and gas companies gained in Asia, with the MSCI AC Asia Pacific Energy sub-index rising 0.5 per cent, compared with a 0.6 per cent drop in the broader gauge. Chinese producer PetroChina added 0.7 per cent, while Australia’s Santos added 5.1 per cent and India’s Oil & Natural Gas rose 1.8 per cent.