Oil prices up as new OPEC deal outweighs record US exports

Oil prices rose after Saudi Arabia and Russia agreed it could be possible to extend the OPEC supply cut agreement to the end of 2018. Twitter photo.

Oil prices halt 5 per cent drop over last week

Oil prices jumped on Thursday on hints that Saudi Arabia and Russia would continue to limit production to the end 2018, offsetting record US crude exports and production resuming at Libya’s largest oilfield.

Benchmark Brent rose $1.33 to $57.13/barrel by 12:28 p.m. EDT and US WTI was up by 98 cents to $50.96/barrel. Bucking the trend, Western Canadian Select dropped by 0.68 per cent, or 27 cents to $39.44/barrel.

Both Brent and WTI were down over 5 per cent over last week on profit taking after 20 per cent gains in the third quarter.

“Bullish comments from the Russian and Saudi Energy ministers are helping arrest the recent decline in oil prices,” Stephen Brennock, analyst at PVM Oil Associates told Reuters.

According to Reuters, Russian President Vladimir Putin said the OPEC supply cut agreement could be extended to the end of 2018, beyond the current March 2018 expiry date.

As well, Russia’s Energy Minister Alexander Novak said on Thursday, while Saudi Arabia’s King Salman was in Moscow, that his government would support more countries joining the OPEC pact.

“Putin and Salman will most likely reach, but not announce, an agreement to extend the OPEC/non-OPEC production deal, though with a commitment to taper the cuts,” said Eurasia Group.

But, some factors weighed on oil prices, including the restart of Libya’s 230,000 barrels per day (b/d) Sharara oilfield and increased US crude exports.

According to the US Energy Information Administration, US crude exports jumped by 1.98 million b/d last week to 9.56 million b/d. The increase followed a widening of the US crude against Brent discount which made US crude much cheaper on world markets.

Barclays threw some shade on the oil industry when they argued future crude demand could be weakened by improved vehicle fuel-efficiency and more electric vehicles sales.

“EV uptake and increased fleet fuel-efficiency could cut oil demand by around 3.5 million b/d in 2025,” the bank said. In 2016, the Canadian oil sands produced 3.85 million b/d.

If many industry analysts are correct and the number of EVs bought rises to 33 per cent of new car sales from the current 1 per cent, that could ” affect oil demand by around 9 million b/d”, Barclays said.