EMEA News
US Crude Hits 2-Year High as Russia Said to Support OPEC Cutbacks Until End of 2018
The potential roadblock that worried analysts supportive of the Organization of the Petroleum Exporting Countries (OPEC) extending its output cutbacks seemed to be settled on Friday, with Russia declaring its support for the initiative - less than a week before the cartel meets in Vienna to discuss the matter on November 30.
The news caused West Texas Intermediate to rise by 93 cents to $58.95 per barrel after briefly touching $59.05, and Brent climbed 31 cents to $63.86 per barrel.
After weeks of insisting that it was premature to discuss the matter and rumours that Russia would back out of the cutbacks entirely if crude prices were sustained at the $60 region, Alexander Novak, energy minister for the former Soviet Union, told RBC TV, "We see that 50 percent of oil stockpiles have been removed, the oil price has reached its balance; however, the targets on rebalancing the market have not been reached.
"Everyone supports the extension, so that the targets are finally reached," he said, adding that "different options are under consideration."
At one point during the interview he emphasized that "Everyone is in favor of extending the deal to reach its final goals; Russia also supports these proposals."
Moreover, people involved in the matter told Bloomberg that OPEC and Russia have crafted the outline of a deal to extend their oil production cuts to the end of next year, and that Moscow and Riyadh agree they should announce an additional period of cuts on November 30.
Allegedly, Russia wants the extension deal to include new language that would link the size of the curbs to the health of the oil market: specifically, linking the cuts to the supply-demand balance on the market, or the level of fuel inventories in industrialized countries.
But the apparent breakthrough isn't the only reason crude prices on Friday jumped to a two year high: the partial closure of the Keystone pipeline due to an oil spill was also responsible for galvanizing traders, and John Kilduff, founding partner for Again Capital noted that the closure could last for another few weeks, thus further supporting prices.
Also, despite Friday's focus on Russia, an agreement to extend the cuts on November 30 is hardly a done deal, as suggested by oil options currently being the cheapest in three years; Bloomberg pointed out that "This week's cheap options may prove a good deal, if the OPEC/non-OPEC meeting next week brings any surprises that send prices gyrating."
Alexander Novak's comments suggest that Russia has not only rejected the prospect detrimental to its economy that an OPEC extension will result in prices between $60 and $65, but also the familiar argument that more cutbacks might encourage U.S. shale to take up the slack and flood the market with even more crude than current exists.
