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Oil prices rise temporarily on talk of output cut

Oil prices surged temporarily on Tuesday, reaching their highest levels in more than a week after Russia and Saudi Arabia provided the markets with hope of an eventual deal to tackle a deep supply glut.

Representatives from two of the world’s biggest oil producers agreed to freeze production levels, in what could be the first deal between an Opec and non-Opec country in 15 years.

However a major sticking point in sealing a comprehensive deal may be Iran, which was absent from the talks and has been determined to raise production.

Brent crude for April delivery was up $2 at $35.39 (£24.76) a barrel, on top of 11% gains over the past two days. But it later retreated to $32.37, lower than it started the day’s trading, as traders and analysts grew sceptical about what was achievable.

US crude rose by as much as $1.50, or 5.1%, to $30.94. It was the highest level since 8 February and came on top of Friday’s gains of more than 12%. The price later slipped back to $28.99.

The talks in Doha, which had been kept under wraps until recent days, involved powerful Saudi oil minister Ali al-Naimi and his Russian counterpart Alexander Novak, sources said, two figures who must reach an accord for any coordinated global action to hold any hope of success.

They were joined by Venezuela’s oil minister, Eulogio Del Pino, who has in recent weeks been visiting major oil producers to rally support for the idea of freezing production at current levels in an effort to halt a downward spiral in prices, sources have said.

“A production freeze dependent upon the involvement of Iran seems a bridge too far at this juncture,” said Matt Smith, director of commodity research at New York-based ClipperData, an energy data provider.

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While the decision was a move towards bringing supply and demand into balance, analysts also cautioned that global inventories remain near record levels and are likely to dampen any price rallies.

“I’m adding to the short positions I have in US crude spreads as I only expect price declines from here,” said Tariq Zahir at New York’s Tyche Capital Advisors. “The output freeze will do nothing to alleviate excess supply.”

Daniel Ang, an analyst at Phillip Futures in Singapore, said: “As much as we continue to believe that this is yet another meeting that would yield nothing, the markets remain wary of any sudden agreement that major oil producers could come to.”

Oil prices have fallen by more than 70% in the past 20 months, driven lower by near-record production both from Opec and other producers, such as Russia.

But analysts also cautioned of violent price spikes and market volatility in coming weeks should there be indications of serious production or stockpile declines.

US crude prices may come under pressure as oil inventories remain close to record levels and US refiners are cutting back their processing runs on falling profit margins.

WTI (West Texas Intermediate) may fall to below $20 a barrel as a drop in US crude demand outweighs cutbacks in production as domestic producers shut wells, BMI Research said in a note.


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