NEW YORK, May 20 — Oil rose back above US$50 (RM216) a barrel to a one-month high on growing confidence that Opec will maintain its efforts to diminish a global glut.
Futures advanced 2 per cent in New York, capping the biggest weekly gain since March. The Organisation of Petroleum Exporting Countries and its allies will probably prolong their agreement at least until the end of the year, according to a Bloomberg survey of analysts this week.
Oil was also boosted by a weakening dollar headed for its steepest weekly slide since July, boosting the appeal of commodities as a store of value.
Opec and its partners will meet on May 25 in Vienna to decide whether to prolong their supply cuts past June. Several members have voiced support for the proposal to extend curbs after Russia and Saudi Arabia said global inventories haven’t yet fallen to targeted levels.
Meanwhile, production in the US has been increasing, threatening to derail the group’s goal.
“The focus is intensifying on what Opec will do next,” John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, said by telephone. “The prospect of longer cuts and a larger size are like a shiny object dangling in the sea.”
West Texas Intermediate for June delivery rose 98 cents to US$50.33 a barrel on the New York Mercantile Exchange. It’s the highest close since April 19. Prices increased 5.2 per cent this week.
Brent for July settlement climbed US$1.10, or 2.1 per cent, to US$53.61 a barrel on the London-based ICE Futures Europe exchange. Prices rose 5.4 per cent this week. The global benchmark crude closed at a US$2.94 premium to July WTI.
The Bloomberg Dollar Index dropped as much as 0.7 per cent to the lowest level since November. The Bloomberg Commodity Index climbed as much as 1.6 per cent to the highest in a month.
US dollar support
“Oil is priced in the US dollar, so a weaker dollar is a price cut to consumers around the world," Bill O’Grady, chief market strategist at Confluence Investment Management in St Louis, which oversees US$3.4 billion, said by phone. "It looks like the dollar has a lot lower to go. This will continue to be supportive for oil, a lot more than anything Opec accomplishes next week.”
Most members support a proposal by Saudi Arabia and Russia to extend supply cuts for nine months, Algerian Energy Minister Noureddine Boutarfa said Thursday. Algeria, which was instrumental in crafting Opec’s historic output deal last year, has cut production by 55,000 barrels a day, according to Boutarfa, who sees field maintenance in May and June trimming its output by a further 15 per cent.
Opec’s Economic Commission Board, a panel of representatives from member countries, is considering the implications of various scenarios including extended production cuts, deeper supply reductions and the expiration of the curbs in June, according to a delegate familiar with the matter.
“Opec ministers likely will continue to talk oil higher, there is more chatter on the discussion and that means there will be more volatility in prices,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “We still expect prices to move to US$60 over the coming months because the oil market will be in a deficit as supply growth will lag demand growth.”
Spring started with American drivers consuming a record amount of gasoline, the American Petroleum Institute said on Thursday, a positive sign for oil markets counting on US demand to help ease a supply glut.
Azerbaijan favours extending oil production cuts until the end of 2017 rather than March 2018, the country’s Energy Minister Natiq Aliyev said at a meeting with the US ambassador in Baku, according to an emailed statement.
Brent futures could move into a price structure called backwardation — where later contracts trade at a discount to earlier ones — in the second half of this year if Opec extends its cuts, according to Bank of America Corp.
Norway’s oil output in April rose 4.2 per cent to 1.7 million barrels a day compared with a year earlier, the Norwegian Petroleum Directorate said in statement on its website. — Bloomberg