U.S. West Texas Intermediate and international-benchmark crude oil futures are trading higher on Monday while giving back some of its earlier gains. The early surge was fueled by comments from Saudi Energy Minister Khalid al-Falih, who indicated there was consensus among OPEC and its allies to continue with its strategy to limit production, trim the global supply glut and stabilize prices.
Saudi Comments on Production Cut Extension
The initial surge in prices was fueled by Falih after he said on Sunday there was a consensus among OPEC and other non-OPEC producers to drive down crude inventories “gently”, but his country would remain responsive to the needs of what he called a fragile market.
“This second half, our preference is to maintain production management to keep inventories on their way declining gradually, softly but certainly declining towards normal levels,” he told a news conference after a ministerial panel meeting.
Russian Energy Minister Outlines His Ideas
Russian Energy Minister Alexander Novak on Sunday said there were different options available for OPEC and its oil-producing allies in the second half of 2019, including a possible raising of output.
“As far as our joint plan of action for the second half of the year. We are supportive of continuing our cooperation with our colleagues from other countries,” Novak told CNBC.
“But this continuation could depend to various extents on how the situation unfolds by this time and what forecasts for supply and demand will be on the market. If it turns out there will be a shortfall in the market then we will be prepared to examine options linked with a possible increase in production,” he said Sunday.
The OPEC-led supply cuts have been the one constant underpinning crude oil prices since the first of the year. Although a decision to extend the program will not be made until OPEC and its allies meet in late June, today’s price action confirms that this is the main catalyst driving the rally. Additional support is being provided by the U.S. sanctions on Venezuela and Iran.
While the aforementioned factors have been driving the trend, geopolitical events have been creating the current, choppy-two sided trade. These factors include renewed concerns over U.S.-China trade relations, which could impact future demand, and rising military-related tensions in the Middle East, which could cause a supply disruption.
We expect the story to remain the same today. Prices will continue to be supported by any news suggesting the production cuts will continue. Prices could spike higher on news about supply disruptions. However, prices could weaken if U.S.-China trade talks collapse.
This article was originally posted on FX Empire
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