Oil Markets Creep Higher on Supply Pact Expectations

Crude oil markets were slightly higher on Friday, supported by continuing supply cuts and expectations that an output deal will be extended at the end of the month.

Brent crude was at $64.22 a barrel, up 27 cents from the previous close and 43 cents off a more than a two-year high of $64.65 reached this week. US West Texas Intermediate crude was at $57.26, up 9 cents and also not far from this week’s peak of $57.92, its highest in more than two years, CNBC reported.

The higher prices are a result of efforts led by the Organization of Petroleum Exporting Countries and Russia to tighten the market by cutting output, as well as strong demand and rising political tensions.

There are also expectations in the market that OPEC’s next meeting on Nov. 30 will agree to extend cuts beyond the current expiry date in March 2018.

“Clearly the market is still convinced that OPEC will succeed in tightening the market to a sufficient extent by extending its production cuts. Attention is, therefore, paid to any news that supports this view,” Commerzbank analysts said.

“Even significantly weaker Chinese crude oil imports in October and an increase in US crude production to a record level failed to exert any lasting pressure on oil prices.”

On Friday, Saudi-owned Al Hayat newspaper cited UAE Energy Minister Suhail bin Mohammed al-Mazroui as saying that oil producers will have little difficulty taking a decision on extending the pact.

“The market needs a bit of a correction. No one is talking about not extending the cut,” he told the newspaper, adding that it is more a case of deciding on the duration of an extension.

Also supporting prices is strong demand in Southeast Asia, where the number of tankers holding oil in storage around Singapore and Malaysia has halved since June.

However, some analysts say gains might not be sustained.

“The uptrend that has dominated oil futures contracts for most of the last five months is still in place, but it is beginning to look weary,” said Robin Bieber, chart analyst at London brokerage PVM Oil Associates.

US bank Goldman Sachs also warned of greater price volatility ahead, citing rising tensions in the Middle East, especially between OPEC members Saudi Arabia and Iran, along with soaring US oil production.