Oil Prices Soar As Russia Could Cut Production By 500,000 Barrels Per Day

All energy products rallied today as the upswing in Brent oil and crude oil supported the entire sector. WTI oil rose to 35.17 adding $1.23 on Thursday, while US oil rose to 33.51 matching Brent oils gains.  Oil continued to rally on Friday morning with crude oil moving to 33.62 and Brent oil at 35.21. The rise in oil prices helped traders move from risk aversion as gold gave back earlier gains and the dipped to 98.58. Rebounding oil prices come after days of news of a possible OPEC meeting with non-cartel oil producing states on the issue of stemming the months-long crude price slump. On Thursday, Russian Energy Minister Alexander Novak said that Russia was ready to take part in an OPEC meeting together with other non-cartel countries.

The Head of Russia’s Transnet energy company Nikolay Tokarev stated that Saudi Arabia had proposed holding a meeting on the state on global oil market. According to Tokarev, OPEC is likely to hold the meeting in February, with oil production decrease on the agenda. Market prices for crude benchmarks dropped to a 12-year low in mid-January, sliding below the historic level of $30 a barrel before starting to recover after January 20.

The Russian ruble strengthened on the currency exchange rates against the dollar and euro trading at 75.89 rubles to the dollar and 82.92 rubles to the euro in a reaction to growing Brent oil prices of around $35 to the barrel, according to Moscow exchange market statistics.

The very pessimistic situation was uplifted by a glimmer of hope. Major oil-producing countries, including Saudi Arabia and Russia, which were previously disinclined to agree upon a cut in production to support prices, have begun to feel enough pressure to at least talk about the possibility of limiting current output levels. According to Russian Energy Minister Alexander Novak, Saudi Arabia has proposed up to a 5% reduction in output by each oil-producing nation. Also proposed was a meeting among oil and energy ministers of both OPEC and non-OPEC nations to discuss the situation.

On this news of potential cooperation after so many months of non-cooperation, the initial knee-jerk reaction was swift and substantial. Brent crude surged briefly above $35, establishing a three-week high, before paring those gains as the news settled in. The high that was reached was right at the key 50-day moving average, and closely approached major resistance around the $36 level.

Now that this relief rally is occurring, is a possible cooperation among oil-producing nations enough to sustain an actual recovery in oil prices? This will clearly depend on the extent and scope of participation in this potential agreement. A broad-based, substantive agreement that includes most of the largest oil producers would very likely have a substantially positive impact on oil prices.

Crude accelerated higher after Russian Energy Minister Alexander Novak revealed the proposed reductions in output, which would amount to about 500,000 barrels a day of cuts by Russia, one of the largest producers outside OPEC.

If implemented, the output reductions could help ease a supply glut that caused oil prices to fall more than 60 percent since mid-2014. Prices hit their lowest level for more than 12 years last week.

A senior Gulf OPEC delegate said that Gulf countries and Saudi Arabia are willing to cooperate on any action to stabilize the oil market.

Anticipation that OPEC and non-OPEC producers could coordinate production cuts has been around all week, and a closing gain on Thursday would be the third in a row. But analysts and market watchers have been skeptical, saying it was unlikely a deal would emerge, particularly as Iran, which has boosted oil exports after the lifting of sanctions, seeks to recover its market share.