Oil Rises as OPEC Extends Supply Cuts, Overcoming Demand Jitters

(Bloomberg) -- Oil closed higher to finish a roller-coaster trading session, as an OPEC agreement to extend output curbs outweighed troubling economic data.

After surging at the start on Monday, oil prices spent much of the day drifting lower, even after OPEC members quickly decided to prolong production cuts by nine months. The coalition then spent hours arguing over a proposal to formalize cooperation with Russia and other allies. Futures closed up 1.1% in New York, after surrendering a gain of more than 3% earlier in the day.

While drawn-out OPEC negotiations are nothing new, “people are getting a bit restless," said Ashley Petersen, an oil analyst at Stratas Advisors LLC in New York. Monday’s rally may have lost steam as investors cashed in on gains after this weekend’s trade-war truce between the U.S. and China, she said. “With the expectations for the OPEC+ meeting today, markets came into the week feeling very good, and they still do which is why we saw that profit taking."

Despite the OPEC agreement, traders also faced a slew of disappointing manufacturing reports from the U.S., China and Europe that undermined faith in oil demand going forward. Morgan Stanley lowered its growth forecast for the global economy despite an agreement by U.S. President Donald Trump and his Chinese counterpart Xi Jinping to revive trade talks.

The U.S. dollar also jumped by the most in 3 1/2 months on Monday, diminishing the appeal of greenback-denominated commodities such as oil.

OPEC’s plan to extend cuts is more or less “priced in”’ to the market and it’s not clear how much more of a boost it will provide, said Ellen Wald, president of Transversal Consulting, an energy and geopolitics adviser in Jacksonville, Florida.

The Organization of Petroleum Exporting Countries’ accord is expected to be ratified Tuesday by allies including Russia.

While ministers agreed in Vienna to extend the cuts by nine months, a news conference was delayed for hours due to lengthy discussions behind closed doors about a proposed charter intended to make OPEC and non-OPEC cooperation more formal. Iran was objecting to the proposal.

West Texas Intermediate oil for August delivery climbed 62 cents to $59.09 a barrel at the close of official trading on the New York Mercantile Exchange. It had earlier crossed the $60 mark for the first time since late May.

Brent for September settlement ended 32 cents higher at $65.06 on the ICE Futures Europe Exchange.

Oil rose by the most since January last month after escalating tensions in the Middle East spurred concerns over supply. Worries increased as Iran began to renege on its commitments to a nuclear deal, following the imposition of tighter U.S. sanctions. Yet the Persian Gulf nation is backing the OPEC+ extension, removing a major hurdle for Saudi Arabia and Russia.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed Bin Salman agreed to prolong the curbs over the weekend.

For Saudi Arabia, “this is about revenue. If they believe they can cut and get prices higher, they will do it,”’ Energy Aspects Ltd. chief oil analyst Amrita Sen said in a Bloomberg TV interview. “There is going to be a big push to get laggards such as Iraq and Kazakhstan to start complying.”

--With assistance from James Thornhill, Grant Smith, Saket Sundria and Harkiran Dhillon.

To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Alex Longley in London at alongley@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Catherine Traywick, Mike Jeffers

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