Oil hit a three-week high on Monday above US$52 a barrel after top exporter Saudi Arabia and Russia said supply cuts needed to last into 2018, a step towards extending an OPEC-led deal to support prices for longer than originally agreed.
Energy ministers from the two countries said on Monday that supply cuts should be prolonged for nine months, until March 2018. That is longer than the optional six-month extension specified in the deal.
Brent crude, the global benchmark, had risen US$1.54 to US$52.38 a barrel by 1005 GMT and traded intraday at US$52.52, the highest since April 24. U.S. crude was up US$1.48 at US$49.32 a barrel.
Oil traders were surprised by the strong wording of the announcement, although it remained to be seen whether all countries participating in the deal would agree with the Saudi-Russian stance.
Some analysts doubted producers would stick to a prolonged curb.
“Extending the cuts until March 2018 would take account of the fact that demand in the first quarter of a year is lowest for seasonal reasons,” said Carsten Fritsch, analyst at Commerzbank.
“That said, we are skeptical about Russia’s willingness to actively participate in any extended cuts.”
The Organization of the Petroleum Exporting Countries, Russia and other producers originally agreed to cut output by 1.8 million barrels per day in the first half of 2017, with a possible six-month extension.
Oil has gained support from the supply deal but inventories remain high and output from other producers such as the United States is rising, keeping prices below the US$60 that Saudi Arabia would like to see.
The ministers said they hoped other producers would join the supply cut, which would initially be on the same volume terms as before. Kazakhstan, however, said it could not join a prolonged cut on the same terms.
“It is certainly a strong statement to include already 2018, while it may also be aimed at improving the chances of keeping other participants on side when it comes to the next round of talks in 10 days,” analysts at JBC Energy said in a report.
OPEC and the non-OPEC countries meet to decide policy on May 25 in Vienna, and OPEC has also invited two small producers not involved in the original deal, Egypt and Turkmenistan, to attend.
© Thomson Reuters 2017