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11 December 2023

Oil price surges to $36 on hopes for production deal

An oil pipe is seen in front of a drilling rig at a Lukoil-owned oil field outside the West Siberian city of Kogalym, Russia. (Reuters)

By Vicky Kapur & Agencies

Global oil prices rose to a three-week high over the weekend, surging by as much as 25 per cent from 12-year lows hit last week as speculation rose about a deal between the major oil exporters to slash production.

In addition, the latest announced US GDP data was weaker than expected, raising hope that the US Federal reserve may not hike up the interest rates in March and wait to do so later in the year.

The oil market rallied for four straight sessions after a renewed call from the Organisation of the Petroleum Exporting Countries (Opec) for joint efforts with rival producers to cut supply triggered a volley of comments from Russia on a deal with the organisation, something it had been refusing to do for 15 years.

Russia’s Foreign Ministry spokeswoman Maria Zakharova said on Friday that Foreign Minister Sergey Lavrov will be visiting the Opec-member UAE and non-member Oman this week (February 2-3), raising the spectre of a production agreement between major oil exporters.

Brent crude oil settled at $35.99 a barrel, up almost 30 per cent from the 12-year-low that it hit last week. West Texas Intermediate (WTI), on the other hand, settled at $33.62 a barrel over the weekend, having hit a high of $34.40 during the last session of January.

Venezuela also sent its oil minister to Russia on a tour beginning on Saturday of non-Opec and fellow Opec states.

Critics of the speculation regarding a deal maintain that, with Iran and Iraq staying out of any potential negotiations, it may be a false dawn fuelling the current oil prices.

“The market has rewarded these statements about the possibility of a deal, even though I think it's ridiculous," John Kilduff, partner at Again Capital in New York, was quoted by Reuters as saying.

He noted that Iran and Iraq were determined to boost production, and were unlikely to come together with Saudi Arabia to cut OPEC output. The Saudis have made no official statement on a deal.

"This is a rally on false hopes, unfortunately"

Other analysts said prices may have found a bottom and could rally as high as $45 by year-end as non-Opec supply is reduced and global demand improves.

“With more energy companies announcing cuts and Opec contemplating a cut, it looks like oil is forming a bottom,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

“Now the question becomes how high can they go. The charts look like a test near $40 is on the cards.”

Tags: #Oil #Opec #Saudi #Iran #Iraq