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Oil rises on optimism Opec+ supply curbs will stabilise market
[NEW YORK] Oil edged higher on renewed optimism that announced production cuts from the Opec+ coalition will re-balance global markets, while Libya's biggest field remained shut, taking supply off line.
Futures in New York gained as much as 2.8 per cent before prices were pared by a sell-off of US equities prompted by President Donald Trump's threat to shut down the federal government over funding for his border wall. West Texas Intermediate futures for January settled at US$51.65 a barrel on the New York Mercantile Exchange, a 65 cent increase over Monday.
Saudi Arabia has said it plans to slash output to about 10.2 million barrels a day in January, down 900,000 a day from November. On Tuesday, Russian Energy Minister Alex Novak said his country will reduce output next month by at least 50,000 to 60,000 barrels a day, some 11,000 below November. Those curbs come as Libya's largest field is off line and European equities rose.
"The Russians committing to the cut and putting a number out, even though it was relatively small, allowed the markets to rally," said Bob Yawger, director of futures at Mizuho Securities USA. "Once the rally started, there were still lots of people still short so it flushed a lot of them out."
Crude has sunk about 30 per cent from a four-year high in early October, with volatility reaching a two-year high last month. While analysts from Goldman Sachs Group Inc to Morgan Stanley are optimistic the Opec+ curbs will bring relief to the market, they're concerned over the longer-term effectiveness of the pact.
That sentiment was echoed by commodity hedge fund Philipp Oil, which said in an investor letter that while Brent has found a floor of around US$60 a barrel after the supply limits were announced, weaker oil demand and booming US shale output will keep markets oversupplied.
Brent for February delivery climbed 23 cents to US$60.20 a barrel on London's ICE Futures Europe exchange. The global benchmark crude traded at an US$8.36 premium to WTI for the same month.
Libya declared force majeure earlier this week at the Sharara oil field after an armed group forced a production halt. The shutdown will result in an output loss of 315,000 barrels a day, state producer National Oil Corp said on its website.
US equity markets and European stocks rallied earlier as investors weighed the prospects for success in American-Chinese trade talks. China is moving toward cutting its trade-war tariffs on imported US-made cars, a step already brandished by Mr Trump as a concession won during trade talks in Argentina.