Oil Rises to One-Month High as Saudis See Output Curbs Into 2018

(Bloomberg) -- Oil rose to a one-month high as Saudi Arabia said all countries taking part in output cuts agree on extending the deal through the first quarter of 2018.

Futures climbed 0.8 percent in New York after advancing 5.2 percent last week. Prolonging the cuts will help producers reach their goal of trimming stockpiles in developed economies to the five-year average, Saudi Arabia’s Energy Minister Khalid Al-Falih said Sunday. Iraq backed the nine-month extension, removing one of the last remaining obstacles to an agreement at the OPEC meeting in Vienna on May 25.

Oil has climbed as Saudi Arabia and non-OPEC member Russia rally support for a nine-month extension to the deal to curb output by the Organization of Petroleum Exporting Countries and its allies. Al-Falih secured the backing of Iraq for longer curbs after talks in Baghdad with his counterpart Jabbar Al-Luaibi. Iraq had previously favored prolonging the supply cuts by just six month. Separately, non-OPEC nations Oman and Mexico also confirmed their support for a nine-month extension.

"The Saudi statement that everyone agreed to a nine-month extension spurred optimism that the cuts will do something to correct the over-supply scenario," Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone.

West Texas Intermediate for June delivery, which expired Monday, rose 40 cents to settle at $50.73 a barrel on the New York Mercantile Exchange. It’s the highest close since April 18. Total volume traded was about 10 percent below the 100-day average. The more-active July contract advanced 46 cents to $51.13.

Brent for July settlement rose 26 cents, or 0.5 percent, to $53.87 a barrel on the London-based ICE Futures Europe exchange. It’s also the highest close since April 18. The global benchmark crude ended the session at a $2.74 premium to June WTI.

Cut Extension

OPEC and 11 non-members agreed last year to cut output by as much as 1.8 million barrels a day. The supply reductions were initially intended to last six months from January, but the slower-than-expected decline.

See also: Hedge funds shrug off OPEC hype with oil bets at five-month low

"An extension has been priced in," Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago, said by telephone. "I wouldn’t be surprised if they do something to wow the market, such as announcing a larger cut. The market is already rebalancing, but it’s happening slowly."

U.S. crude stockpiles probably dropped for a seventh week, according to analysts surveyed by Bloomberg before an Energy Information Administration report on Wednesday. The nation’s inventories have steadily declined from a record reached at the end of March.

Oil-market news:

• BP and its partners started production at the Quad 204 project in the U.K. North Sea that will produce as much as 130,000 barrels a day this year.
• Iran has approved a plan to boost oil output by 8 percent by March 2018, Islamic Republic News Agency reports, citing directive approved by state-run National Iranian Oil Co.’s board.
• Libya’s Abu Attifel oil field, operated by Mellitah Oil & Gas, plans to restart production on June 1, according to a person familiar with the situation.

--With assistance from Kadhim Ajrash and Khalid Al-Ansary

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editors responsible for this story: Carlos Caminada at ccaminada1@bloomberg.net, Susan Warren, Stephen Cunningham