Oil closed higher after Saudi Arabia and Russia signaled production cuts may be extended into 2019, initially worrying traders that their efforts aren’t working.
Futures rose 0.2 percent on Monday after toggling between gains and losses. Producers should keep limits on output through this year as it may be 2019 before supplies sync with demand, Saudi Arabian Energy Minister Khalid Al-Falih said in a Bloomberg television interview with Russia’s Energy Minister Alexander Novak. Russia is prepared to prolong its alliance with OPEC even after their accord expires at the end of 2018, Novak said.
The comments came after crude futures registered their first weekly decline in a month on concern higher prices may spur more U.S. shale drilling.
Saudi Arabia and Russia “are re-affirming what we already know,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said by telephone. Still, with “OPEC continuing to manage supply and balance the markets long-term, that’s positive for the barrel.”
West Texas Intermediate for February delivery, which expires Monday, rose 12 cents to settle at $63.49 a barrel on the New York Mercantile Exchange. Total volume traded was about 13 percent below the 100-day average. The more-active March contract added 26 cents to end the session at $63.57.
Brent for March settlement climbed 42 cents to settle at $69.03 a barrel on the London-based ICE Futures Europe exchange. It traded at a premium of $5.46 to March WTI.
Al-Falih’s comment on when the market might rebalance led some to believe the cuts may not be tightening inventories fast enough.
The production limits “are obviously not working all that well if you need that much more time to achieve your objective,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, by telephone. The televised remarks were “an attempt to try and talk up the market but I’m not sure that it didn’t backfire to a degree.”
Meanwhile, in the U.S., crude stockpiles are estimated to have shrunk by 2.5 million barrels last week, according to the median estimate of analysts surveyed by Bloomberg. That would be a 10th straight week of declines in the midst of refinery maintenance that typically lasts through March.
“Seasonally, you usually don’t see inventories fall,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “This is your big build season for crude. If you continue to see falling refinery activity and falling inventories, that’s pretty important.”
Crude stockpiles at the key pipeline hub in Cushing, Oklahoma, fell 2.3 million barrels last week, according to a forecast compiled by Bloomberg. Iraq’s oil minister told reporters in Baghdad that global oil inventories are falling and that the market will be stable by the end of 2018. Philadelphia Energy Solutions LLC, owner of the largest oil refinery serving the New York market, filed for Chapter 11 bankruptcy protection.