Oil surged the most in more than five months as Saudi Arabia and Russia extended a cooperation pact and U.S.-China trade tensions cooled. Unprecedented supply cuts in Canada also drove prices higher.
Futures in New York advanced 4% Monday, bouncing back from the worst monthly loss in a decade. Although Russia and Saudi Arabia have yet to confirm any fresh cuts, their agreement opened the door for a deal when OPEC and allied producers meet this week in Vienna.
Crude prices plunged over the past two months on fears of a global oversupply. This weekend’s agreement between Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin buoyed those hoping for an output cut enough to shrug off more ambiguous signs on Monday, including Qatar’s announcement that it would quit OPEC.
“There’s going to be a cut, I think it’s going to be more than people expected, and I think the market realized that today,” said Bob Iaccino, chief market strategist at Chicago-based Path Trading Partners.
For a time, oil pared gains on Monday after an OPEC advisory panel was said to make no recommendation for action and people familiar with negotiations said Russia and the Saudis still haven’t agreed on details of a cut. Iranian OPEC Governor Hossein Kazempour Ardebili, meanwhile, raised doubts about whether producers can reach unanimity in Vienna.
Over the weekend, U.S. President Donald Trump and his Chinese counterpart Xi Jinping called a pause in their trade dispute after a dinner at the G-20 event. Alberta Premier Rachel Notley followed on Sunday by announcing the Canadian province would order local producers to curb production by 325,000 bopd starting next month.
“These are the positive pronouncements that the markets have been waiting for,” said Ashley Petersen, an oil analyst at Stratas Advisors LLC in New York. “Now that we’re here, we should see a big price correction going through the end of this week. The big question is, will OPEC follow through?”
West Texas Intermediate for January delivery climbed $2.02 to close at $52.95 on the New York Mercantile Exchange.
Brent for February settlement rose 3.8% to $61.69 on London’s ICE Futures Europe exchange, and was at an $8.82 premium to WTI for the same month.
With the flurry of bullish news, traders largely discounted Qatar’s surprise announcement that it will leave the Organization of Petroleum Exporting Countries to focus on natural gas. Accounting for less than 2% of the cartel’s output, the exit will have less of an impact on global supplies but could impact OPEC’s cohesion, Petersen said.