By Barani Krishnan
Investing.com - OPEC and its ally Russia are betting that their mantra of production cuts will continue kicking oil prices higher and the market seems to be buying that -- for now.
New York-traded West Texas Intermediate crude settled up 57 cents, or 1%, at $59.09 per barrel after hitting a four-month high of $59.54 in response to remarks by the energy ministers of Saudi Arabia and Russia that the two partners under the OPEC+ alliance will be more aggressive than ever in reducing output.
WTI is now less than $1 from the key $60 resistance, which many expect to be breached later Monday, if not in the coming days, as the first course toward getting the market to the Saudi-aspired price of $80 per barrel.
WTI's prospects have improved dramatically since last week, reducing its discount to global oil benchmark Brent after government data indicated that oil output in the United States was slowing.
Brent was up 31 cents, or 0.5%, at $67.47 per barrel by 2:45 PM ET (18:45 GMT).
The gap between the two benchmarks now stands at slightly more than $8 compared to the about-$10 differential that existed for months prior.
Saudi Energy Minister Khalid al-Falih told reporters in the Azerbaijan city of Baku at the weekend, where OPEC+ met for a preliminary review of its production cuts, that the alliance's work in so-called market rebalancing was far from over. Falih has been cautious not to sound like a price hawk since the OPEC+ campaign began in January, stressing that there should be adequate oil supply as much as there shouldn't be a glut (although Saudi officials privately agree with economists' views that the kingdom needs Brent to be at $80 a barrel at least to fund its budget).
“The supply-cut narrative has outpaced the potential slowdown in global demand scenario for the last few weeks, keeping the oil bears on the sidelines,” Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, said in a note.
After Europe and China, the U.S. economy has been sounding its own weak warnings lately, raising doubts about global oil demand.
Falih said in Baku that uncertainties over Iranian and Venezuelan supplies were also complicating the market rebalancing. The U.S. holds the keys to production in those two OPEC members through sanctions, giving the Trump administration, which wants lower oil prices, the advantage of surprising the cartel at any time with unexpected decisions.
With all this, cuts above the 1.2 million barrels per day originally agreed by OPEC+ will probably be needed, Falih said. Riyadh, so far, has been the only one in the 25-member alliance to exceed that target every month, an achievement the Saudi energy minister has never failed to flag to the market. He said Sunday that the Saudis won’t be the only ones carrying that burden.
That last line appeared to be a gentle nudge to his Russian counterpart Alexander Novak that Moscow needed to do more. As if on cue, Novak responded, saying Russia will raise its compliance to cuts hereon, explaining it had difficulty turning down its production earlier due to winter freeze.
That was enough to spur Monday's buying in oil.
"The strategy of OPEC+ already appears to be bearing fruit," analysts at Commerzbank said in a note.