Oil climbs to five-week high as Saudi-Russia deal signals continuation of Opec+ output cuts

A trade pause war between the US and China also supported the rise in crude prices

Saudi Energy Minister Khalid Al-Falih speaks during a news conference in Riyadh Reuters 

Oil surged to a five-week high after Saudi Arabia and Russia signalled their support for an extension of Opec+ output cuts and a US-China agreement to restart trade talks improved the demand outlook.

Futures rose as much as 2.8 per cent after rallying more than 11 per cent over the past two weeks. Other Opec members have indicated their support for the agreement between Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman to prolong the curbs by six to nine months before their meeting in Vienna this week. Washington and Beijing declared a second truce to their trade war and the US will hold off on imposing additional tariffs on China.

Oil capped its biggest monthly gain since January on Friday after escalating tensions in the Middle East spurred concerns crude flows may be disrupted. While Nigeria, Iraq and Oman flagged support for the Saudi-Russia deal, it’s unclear whether the proposal will win unanimous support from all members of the coalition. The group has typically aimed for half-year output agreements.

“The market is more relieved than happy,” said Vandana Hari, founder of Vanda Insights in Singapore. The trade deal was basically just a cease-fire and an extension of the Opec+ cuts was a “foregone conclusion,” she said.

West Texas Intermediate oil for August delivery climbed $1.41 to $59.88 a barrel on the New York Mercantile Exchange as of 12:11pm  in Singapore  on Monday after advancing as much as $1.63 earlier. The contract added 9.3 per cent last month.

Brent for September settlement rose $1.63, or 2.5 per cent, to $66.37 a barrel on the ICE Futures Europe Exchange. The August contract expired Friday. The benchmark global crude traded at a premium of $6.45 to WTI.

Opec+ oil ministers will hold a series of meetings Monday and Tuesday in Vienna to discuss production policy. Saudi Arabia and Russia are the largest members in the group. “The longer the horizon, the stronger the certainty to the market,” Opec Secretary-General Mohammad Barkindo said Sunday in the Austrian capital after meeting with Saudi Energy Minister Khalid Al Falih.

Plans by President Donald Trump and his Chinese counterpart Xi Jinping to resume talks was a reprieve for the market hit by waning demand due to the entrenched trade spat. Still, International Monetary Fund managing director Christine Lagarde warned that the global economy is in a “rough patch” with unresolved issues on trade posing the most serious risk for the future.

“What came out of the Trump-Xi meeting was probably the minimum,”  Ms Hari said. “It appears a little more positive than it actually is. I don’t expect a deal to happen anytime soon.”