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[CALGARY] Oil briefly surpassed US$59 a barrel in New York for the first time in two years as Opec and Russia were said to have crafted the outline of a deal to extend their oil production cuts.
Futures closed 1.6 per cent higher Friday, just 10 US cents below a fresh two-year high. After days of talks, Moscow and Riyadh now agree on the need to announce an additional period of cuts at the Nov 30 meeting, although both sides are still hammering out crucial details, according to people involved in the conversations. Moscow had been hesitating over the need for an extension because the current deal doesn't expire until the end of March.
"Russia has been scared of higher prices and has been sort of unwilling to commit to a nine month" extension of cuts, Sam Alderson, analyst at Energy Aspects Ltd, said in a phone interview from London. Oil market strength comes from "the more positive signs from Russia."
The US benchmark this week has traded at levels last reached in mid-2015 on heightened optimism that the Organization of Petroleum Exporting Countries and its allies will agree to prolong cuts until the end of next year. Prices are up more than 8 per cent in November, heading for a third monthly gain in what would be the longest winning streak since May last year.
"Everyone is in favour of extending the deal to reach its final goals, Russia also supports these proposals," Energy Minister Alexander Novak told RBC TV.
Mr Novak and ministers from other top exporting countries gathered at a summit in Bolivia this week before their meeting in Vienna. Venezuelan President Nicolas Maduro said at the sidelines of the event that "the path" taken by Opec and its allies must continue.
"It is good news the use of these spaces of permanent dialog to reach agreements to continue establishing the prolonged stability of oil prices," he said.
West Texas Intermediate for January delivery rose by 93 US cents to US$58.95 a barrel on the New York Mercantile Exchange, after touching US$59.05. There was no settlement Thursday because of the Thanksgiving holiday in the US and all transactions will be booked Friday.
Brent for January settlement climbed 31 US cents to US$63.86 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of US$4.91 to WTI.
The oil market is being driven by Russia, Phil Flynn, senior market analyst at Price Futures Group, said in a phone interview. The oil producer has been sending mixed signals.
"At the end of the day, Vladimir Putin kind of favored" an extension, Mr Flynn said. "It's definitely supportive of the market." Prices have also been supported by the shutdown of the TransCanada Corp Keystone pipeline that supplies as much as 590,000 barrels a day of Canadian crude to the US.
The shutdown entered its second week on Friday after a Nov 16 leak spilled 5,000 barrels in South Dakota. The line carries Canadian crude to Cushing, Oklahoma, the main pipeline and storage-tank hub in the US.
The breakdown pushed prices of the front-month contract higher than all the other longer-dated futures this week, a market structure known as backwardation that signals tight supplies and high demand. The last time the WTI futures curve consistently displayed this pattern was in 2014.
US crude inventories declined to about 457.1 million in the week ended Nov. 17, according to the Energy Information Administration. Stockpiles at Cushing, Oklahoma, dropped by 1.83 million barrels to 61.2 million, the largest draw since July. Meanwhile, American production gained for a fifth week to 9.66 million barrels a day.
TransCanada Corp was said to have cut 85 per cent of Keystone's November shipments because of last week's spill in South Dakota.
Saudi Arabian Oil Co is in supply talks with petrochemical conglomerates that are building some of the world's biggest plants in China, said Mushabab Al-Qahtani, vice president of the marketing department at its Asia unit, without identifying the firms.