Oil rose more than 5% yesterday, with Brent going above $32 a barrel on hopes Opec and non-Opec producers were inching closer to a deal to reduce output in the face of one of the biggest supply gluts in decades.
The Organisation of the Petroleum Exporting Countries has renewed calls for rival producers to cut supply alongside its members, but Russia – seen as key to any deal – has resisted so far.
Iraqi Oil Minister Adel Abdel Mahdi said he saw “some flexibility” for a deal, an idea that has been repeatedly mooted and dismissed for more than a year.
Brent crude was up $1.63 at $32.13 a barrel, rebounding from a decline at the start of the session. US crude was up $1.51, or 5% at $31.85 per barrel.
Tim Evans, energy futures specialist at exchange-traded derivative market specialist Citi Futures, said: “The need for a reduction in output is clear – as it has been to us for the past 18 months – but it remains uncertain whether Saudi Arabia and its allies within Opec are ready to return to the bargaining table.
“Without Saudi Arabia on board, there’s simply no deal and the market will be left to rebalance naturally as non-Opec output declines – a slow and still painful process”.
Despite a roughly 20% slide in oil prices this year, major Opec producers have not cut back on investment plans. Instead, some plan to boost supply, as an Iraqi official said his country would do after it reported record production at the end of 2015.
Opec’s Gulf members, led by kingpin Saudi Arabia, have insisted the producers’ cartel will not cut production alone, which would cede market share to rivals.
David Hufton of oil broker PVM reckons an agreement could bring about a $40-to-$60-a-barrel oil market.