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Oil gains on Opec+ pact to cut supply, closure of Libyan field
OIL in London extended gains near US$62 a barrel on prospects for a shrinking glut as the Opec+ group agreed to curb output and protesters forced Libya's biggest crude field to close.
Brent futures rose as much as 1.1 per cent after jumping 2.7 per cent on Friday as producers including Saudi Arabia and Russia committed to removing 1.2 million barrels a day of output, more than the market had expected. Scepticism before a producer meeting in Vienna last week had seen money managers boost bets against crude.
Meanwhile, Libya's state oil firm declared force majeure at its largest oil field after members of the Petroleum Facilities Guard shut down pumps leading to tanks.
Crude is paring this year's losses after the Organization of Petroleum Exporting Countries and its partners defied US President Donald Trump's call for the producer group to keep taps open.
Prices have slid from a four-year high in early October after Washington gave temporary exemptions from sanctions to eight nations to continue purchasing Iranian oil, while America exacerbated a global glut by pumping at record levels.
"Some positives are coming to the table and the market is reacting to the potential of less supply in the short term," said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda Corp.
"Now, we make the all-important pivot to the April Opec meeting and investors will be looking for evidence of how much of these cuts will be delivered."
Brent for February settlement increased as much as 66 US cents to US$62.33 a barrel on London's ICE Futures Europe exchange and traded 0.5 per cent higher at US$61.96 a barrel at 7:22 a.m. in London.
Futures rose US$1.61 to US$61.67 a barrel on Friday. The global benchmark crude traded at US$9.28 above US West Texas Intermediate for the same month.
WTI futures for January delivery were little changed and traded at US$52.50 a barrel on the New York Mercantile Exchange. Prices rose 2.2 per cent to US$52.61 on Friday. Total volume traded was 32 per cent above the 100-day average.
Crude futures both in London and New York surged by at least 5 per cent on Friday after Opec+ managed to reach a deal to remove more than 1 per cent of global production to revive prices.
The deal is testament to the strength of Saudi Arabia's two-year-long cooperation with Russia and showed Crown Prince Mohammed bin Salman is willing to defy the wishes of Mr Trump even after the murder of Jamal Khashoggi.
Still, uncertainty remains in the market, given the deal doesn't specify country allocations and excludes Libya, Venezuela and Iran from the curbs, according to Goldman Sachs Group.
While Morgan Stanley expects the cuts will likely be sufficient to balance the market in the first half of next year, it sees limited upside to prices and cut its Brent crude price forecast by US$10 a barrel for 2019.
In Libya, production from the Sharara oil field was shut after the state oil company declared force majeure as of Sunday, according to a statement on its website.
The closure will result in a production loss of 315,000 barrels a day, with an additional decrease of 73,000 barrels a day at the El-Feel due to its dependence on Sharara for electricity supply. BLOOMBERG