NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled off fresh highs after rallying on news Saudi Arabian and Russian energy ministers have agreed to prolong their ongoing crude oil production cuts through the first quarter of 2018.
“OPEC has been forced into the decision by rising U.S. production that has made it difficult for them to achieve their goal of getting the market back into balance,” said analyst Andy Lipow, president of Lipow Oil Associates in Houston.
Saudi Energy Minister Khalid al-Falih and Russian counterpart Alexander Novak, negotiating on behalf of the Organization of the Petroleum Exporting Countries and 11 participating non-OPEC oil producing nations, said earlier this morning that they have reached a deal to extend their production cuts through March 2018.
“Although the deal will still need to be formally adopted by OPEC at the upcoming May 25 summit, we see no reason for smaller producers to disagree with the proposal,” said analyst Tim Evans at Citi Futures in New York.
The producers are expected sign-off on the production plan to extend the production cuts of nearly 1.8 million bpd through the first quarter 2018 when they meet on May 25 in Vienna. The current OPEC and non-OPEC supply agreement that has been in force since Jan. 1 is due to expire on June 30.
Reports said OPEC has invited Egypt and Turkmenistan to attend the biannual meeting, and would like others to agree to cut output. Egypt and Turkmenistan, which are both non-OPEC nations, have minimal oil production capacity.
Lipow said extending the production cuts to next year and the expected increase in summer crude oil and gasoline demand would “soak up excess global supply.” It comes as Wang Yilin, chairman of state-owned China National Petroleum Corp., said Beijing will start importing more crude oil and natural gas from the United States.
Technical support and a weaker U.S. dollar also underpinned NYMEX oil futures’ gains, with the greenback falling to a one-week low versus other major currencies. The dollar and oil futures have an inverse trading relationship.
NYMEX June WTI crude futures settled $1.01 or 2.1% higher at $48.85 bbl, off a $49.66 better than two-week high, testing resistance at $49.50. The July Brent crude futures contract on the IntercontinentalExchange climbed 98cts or 1.9% to a $51.82 bbl settlement, testing resistance at $52.50 with a better-than three-week high of $52.63. The Brent premium to WTI was little changed at $2.97 bbl.
In products trade, NYMEX June ULSD futures settled 1.63cts higher at $1.5096 gallon, after cracking through resistance at $1.5237 with a $1.5405 three-week spot high. June RBOB futures added 1.93cts with a $1.5954 gallon settlement, testing resistance at $1.6105 with a better than three-week spot high of $1.6186.
George Orwel can be reached at email@example.com
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