Prices closed at the highest in three weeks on Thursday after Novak said that the Organization of Petroleum Exporting Countries and other producers may meet to discuss output. The International Energy Agency warned this month that further declines in oil prices are possible as the world risks “drowning in oversupply”, and demand fades amid slowing growth in China.
Advertisement
Another source told Reuters that the initiative to cut production came from Venezuela and Algeria, rather than the Saudi kingdom.
Crude accelerated higher after Russian Energy Minister Alexander Novak revealed the proposed reductions in output, which would amount to about 500,000 barrels a day of cuts by Russia, one of the largest producers outside OPEC.
Oil volatility has climbed to its highest since 2009 as traders try to price in the uncertainty around supply cuts.
Up until now, the big players have signalled that they would rather draw on financial reserves to see out the current spell of low oil prices than surrender market share to competitors. WTI prices were $0.1 per barrel more than Brent crude oil prices in the last week.
USA crude CLc1 settled up 85 cents at $32.30 per barrel, a 2.7% gain, having topped out at $32.84.
Hints of a possible deal between OPEC members and rival producers had already helped oil rally 4% on Tuesday. Its economy badly needs the oil revenue as it continues to feel the brunt of tough sanctions from the West. The Russian ruble recently collapsed to its lowest level ever.
“If the talks of oil producing countries yield a positive result, this circumstance will give a long-term effect of oil price growth”, he said.
While Saudi Arabia and Opec has repeatedly been calling on non-members to contribute to output cuts, Russian Federation has been shying away from production cuts citing technical issues.
Opec producers, including the cartel’s kingpin Saudi Arabia, have also been feeling the pain acutely of lower oil prices and may be willing to finally give some ground. If discussions with OPEC begin in earnest, that would be a major reversal in Russia’s stance. The two countries’ opposing views on Syria, where Russian Federation is President Bashar Al-Assad’s closest ally and Saudi Arabia seeks his removal, present another diplomatic obstacle.
Advertisement
Mike Lynch, analyst with Strategic Energy and Economic Research, said there was “no strong reason” for Friday’s rise in prices.
