Oil Surges on OPEC+ and US-China Developments
(Bloomberg) -- Oil surged to a five-week high after Saudi Arabia and Russia signaled their support for an extension of OPEC+ output cuts and a U.S.-China agreement to restart trade talks improved the demand outlook.
Futures rose as much as 2.8% after rallying more than 11% over the past two weeks. Other OPEC members have indicated their support for the agreement between Russian President Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman to prolong the curbs by six to nine months before their meeting in Vienna this week. Washington and Beijing declared a second truce to their trade war and the U.S. will hold off on imposing additional tariffs on China.
Oil capped its biggest monthly gain since January on Friday after escalating tensions in the Middle East spurred concerns crude flows may be disrupted. While Nigeria, Iraq and Oman flagged support for the Saudi-Russia deal, it’s unclear whether the proposal will win unanimous support from all members of the coalition. The group that includes the Organization of Petroleum Exporting Countries has typically aimed for half-year output agreements.
“The market is more relieved than happy,” said Vandana Hari, founder of Vanda Insights in Singapore. The trade deal was basically just a cease-fire and an extension of the OPEC+ cuts was a “foregone conclusion,” she said.
West Texas Intermediate oil for August delivery climbed $1.50 to $59.97 a barrel on the New York Mercantile Exchange as of 7:42 a.m. in London after advancing to as high as $60.13 earlier. The contract added 9.3% last month.
Brent for September settlement rose $1.71, or 2.6%, to $66.45 a barrel on the ICE Futures Europe Exchange. The August contract expired Friday. The benchmark global crude traded at a premium of $6.46 to WTI.
OPEC+ oil ministers will hold a series of meetings Monday and Tuesday in Vienna to discuss production policy. Saudi Arabia and Russia are the largest members in the group and are usually able to steer the alliance toward their preferred strategy. “The longer the horizon, the stronger the certainty to the market,” OPEC Secretary-General Mohammad Barkindo said Sunday in the Austrian capital after meeting with Saudi Energy Minister Khalid Al-Falih.
The resumption of U.S.-China trade talks was a reprieve from a demand outlook that’s been hurt by the entrenched dispute. Still, International Monetary Fund Managing Director Christine Lagarde warned that the global economy is in a “rough patch” with unresolved issues on trade posing the most serious risk for the future.
“What came out of the Trump-Xi meeting was probably the minimum,” Vanda’s Hari said. “It appears a little more positive than it actually is. I don’t expect a deal to happen anytime soon.”
--With assistance from James Thornhill.
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