Oil futures
flipped to small gains yesterday and extended a long rally after news
raised expectations the world’s biggest crude exporters will extend an
agreement to cut output
.
The Wall Street Journal reported
that Saudi Arabia has told OPEC officials that it wants to extend the
cartel’s agreement to cut crude-oil production for another six months
when the group meets next month, according to people familiar with the
matter. Saudi support is essential for the 13-member Organisation of the
Petroleum Exporting Countries to renew its agreement and the country
has been largely responsible for the group nearly meeting its reduction
targets during the first three months of the deal.
Light,
sweet crude for May settled up US32c, or 0.6 per cent, at $US53.40 a
barrel on the New York Mercantile Exchange. Brent crude, the global
benchmark, gained US25c, or 0.4 per cent, to $US56.23 a barrel on ICE
Futures Europe. Both hit their highest settlements since March 1.
Prices
jolted higher shortly after the news in the early afternoon although
they had been in negative territory nearly all morning. Those gains,
though small, extend oil’s longest winning streak since August, now to
six sessions. US oil has lost ground only once in the past 11 sessions.
The earlier fall had largely been just from traders taking profits after
the long string of gains, traders and analysts had said. The sheer
length of the rally was making it more difficult for traders to keep
buying, as many will eventually just want to lock in a profit or avoid a
rush of other traders doing so. "That is exactly the type of news that
would extend that rally,” said John Saucer, vice-president of research
and analysis at Mobius Risk Group in Houston.
Saudi
Arabia is OPEC’s biggest producer and the world’s top exporter of oil.
It has shouldered the cartel’s largest burden, slashing as much as
700,000 barrels a day in some months to make up for shortfalls from
other members. The kingdom’s Energy Minister, Khalid al-Falih, has been
unwilling to publicly signal that he would support extending the cuts,
but he has since decided he would sign off on renewing the agreement,
the people familiar with the matter said.
Whether
OPEC extends its agreement has become one of the major focal points of
the market. If OPEC doesn’t agree to an extension, it may face an
onslaught of bearish traders and new oversupply that sinks prices back
to near $US40 a barrel, Citigroup analysts said on Tuesday. Extending
the deal was likely to push prices to $US60 a barrel, they added.
"As
we have been saying, the rebalancing of the market is under way, while
OPEC and non-members are likely to fully abide to the production
quotas,” Peter Cardillo, chief market economist at First Standard
Financial in New York, said in a note. "In fact, we think the chance of
renewing them in June is a near certainty.”
Traders
are also awaiting reports coming today on US inventories from industry
and government organisations. These reports have taken on even more
importance than usual in recent weeks as traders gauge whether OPEC’s
cuts will cause historically high storage levels to fall in the world’s
biggest market.
Many believe that will
happen, but are taking a wait-and-see attitude for now, said Bart Melek,
head of commodity strategy at TD Securities in Toronto. Unexpected and
large stockpile additions in early March had caused a tumble in oil
prices before the recent rebound.
"After the rally we had, it’s not surprising people would want to take some profits off the table here,” Mr Melek said.
(www.theaustralian.com.au)