Commodities: Crude prices soar on hope of output cut extension to 2018
A wave of optimism swept through the oil market on Monday as Saudi Arabia and Russia said supply cuts needed to last into 2018, but not all pundits are convinced.
At 15:28 BST, Nymex-priced West Texas Intermediate crude was up 2.97% to $49.26 a barrel. Intercontinental Exchange-traded Brent was ahead 2.75% to $52.24 a barrel.
The supply cuts should be extended for some nine months, said energy ministers from the two countries, meaning they would last until March 2018.
Opec, Russia and other oil producers had previously agreed to lower production by 1.8m barrels a day in the first half of 2017, with scope to extend that by six months.
FXTM research analyst Lukman Otunuga said the prospect of the world's two top oil producers working together to battle the oversupply woes might support WTI in the short term.
He said gains might be limited if US shale's incessant pumping sabotaged Opec's effort to stabilise the markets.
"Although most remain cautiously optimistic that the Opec meeting on 25 May will result in an extension to the supply cut deal, one should learn to always expect the unexpected when dealing with the cartel," said Otunuga.
"From a technical standpoint, a daily close above $49 on WTI Crude should encourage a further appreciation towards the psychological $50 level."
Naeem Aslam of Think Markets UK commented that a wide sense of optimism sweeping though the market had sent oil prices soaring.
However, the chief market analyst suggested traders keep a close eye on Opec's end of May meeting.
"If they are serious about taking barrels out of production, doubling the cut they applied at the beginning of the year is the bare minimum they have to do," said Aslam.
"Interesting times ahead for oil traders, as Opec and US continue to play cat and mouse," he added.
"Should Opec push harder, we will see some painful decisions from its members. But even if that turns out to be the case, don’t expect the US to sit back and watch.
"No matter what Opec does after all, the one thing oil traders had better track is the US shale supply. Keep on the watch!"
Commerzbank analyst Carsten Fritsch added that Opec extending the crude cuts until March 2018 would take account of the fact that demand in the first quarter of a year was lowest for seasonal reasons.
"That said, we are skeptical about Russia's willingness to actively participate in any extended cuts," Fritsch told Bloombnerg.
Meanwhile, on Comex, gold was up 0.55% to $1234.5 an ounce. Silver rose 2.0% to $16.73 an ounce, and copper gained 0.81% to 254.45 cents a pound.
"Gold edged higher on Monday after weaker than expected economic data from the US on Friday exposed the Dollar to losses. Ongoing geopolitical tensions concerning North Korea continue to support the yellow metal," said Otunuga.
On the London Metals Exchange, three-month industrial metals were mixed. Copper rose 0.3% and aluminum gained 0.85%, however, zinc fell 1.43% and tin dropped 0.1%.