According to the news report by Bloomberg, the price of oil surged after Russia and Saudi Arabia extended their deal to manage oil markets till 2019. Additionally Canada’s biggest oil producing province also announced unprecedented oil production cuts.
After more than 5 months of sliding prices leading to the worst month in a decade in November, the oil surged more than 5% in both the American as well as the international benchmarks today.
While Russia and Saudi Arabia haven’t yet confirmed any price cuts, the fact that the world’s two largest oil producers’ leaders have agreed to work together to manage oil markets has opened the door for a possible deal during the upcoming OPEC meeting in Vienna this week.
The extension of the pact was announced by President Vladimir Putin after the two countries’ leaders met on the sidelines of the G20 Summit on Saturday. OPEC leaders present at the Summit stated that the agreement between the world’s two biggest oil countries had opened doors for a deal at next week’s meeting, however, there was a lot of work to be done, especially related to what the size of oil cuts should be.
Alberta, Canada’s biggest oil producer announced its decision to cut oil production by 325,000 barrels per day pushed the oil price rally even higher. However, Qatar’s surprise decision to leave the OPEC to focus on natural gas did not rock the markets too much.
The unprecedented move by Alberta was focused on easing the energy crisis currently facing Canada. The plan is that the country’s biggest oil producer will cut down on the production crude oil and bitumen by 8.7% starting January. This production cut will continue till such time as the surplus inventories are drawn down.
After that, the province would continue to produce oil at 95,000 barrels less per day till the end of next year at the most.
The news of Qatar announcement that it was leaving the OPEC just days before the highly anticipated Vienna meeting did not have that much of an impact in the market though. The Energy Minister Saad Sherida Al-Kaabi announced that the country was leaving OPEC to concentrate their liquefied natural gas production.
According to Saxo Bank A/S’s head of commodities strategy Ole Hanson, the oil market had been in desperate need of some kind of a psychological push and that came over this weekend not just from Buenos Aires but also from Canada.
Hanson feels that the pact between Putin and Crown Prince Mohammed Bin Salman may also have triggered yet another curtailment in oil production.
Investors are being relieved by the good news that came through over this weekend after the crude oil market finally collapsed into a bear market in November.
Thanks to this news, concerns that OPEC+ (Organization of Petroleum Exporting Countries and its allies) may not be cutting down on oil production have started to ease. However, the meeting between OPEC and its allies this week will give the markets more concrete news.
Another big kicker was the fact that trade tensions between the US and China seemed to be easing also reduced concerns that there could be a reduction in global oil demand.
During their meeting at the G20 Summit in Buenos Aires, Argentine this weekend, US President Donald Trump and Chinese President Xi Jinping agreed to call a truce in their trade war. Trump agreed to postpone the tariff hike that he had been planning for another three months. In return, China promised to import more American products.
Thanks to this truce, the markets saw a rally in higher risk sectors including oil.