The Organization of the Petroleum Exporting Countries agreed on Monday to extend oil supply cuts until March 2020, three OPEC sources said, as the group’s members overcame their differences in order to prop up the price of crude amid a weakening global economy and soaring U.S. production.
OPEC is slated to meet with Russia and other producers, an alliance known as OPEC+, on Tuesday to discuss supply cuts amid surging U.S. output.
U.S. crude futures for August climbed 31 cents to $58.78 a barrel, after earlier hitting their highest in over five weeks at $60.28.
“It’s going to be hard to hold onto the gains: there’s going to be a question in the market as to whether the cuts are enough,” said John Kilduff, a partner at Again Capital Management in New York. “So far they’re getting the benefit of the doubt, but we’ve slipped a bit off the highs.”
Iran – under U.S. sanctions alongside OPEC ally Venezuela – on Monday joined top producers Saudi Arabia, Iraq and Russia in supporting an extension of a supply cut.
Russian President Vladimir Putin said on Sunday he had agreed with Saudi Arabia to extend existing output cuts of 1.2 million barrels per day (bpd) by six to nine months.
Saudi Energy Minister Khalid al-Falih said the deal would most likely be extended by nine months and no deeper reductions were needed.
“If Russia, Saudi Arabia and the other key OPEC members keep production at the levels they produced in H1-19 they will ensure that the global oil market is not flowing over. They will only have to pay a small restraint while reaping a nice oil price of $60-70 a barrel,” said SEB’s Bjarne Schieldrop.
“OPEC as a whole is losing market share. But this burden is not evenly distributed as it is Venezuela and Iran who are taking almost all the pain.”
Oil prices have come under renewed pressure in recent months from rising U.S. supplies and a slowing global economy.
U.S. crude oil output in April rose to a fresh monthly record of 12.16 million bpd, according to the U.S. Energy Information Administration, even though shale production growth likely peaked last year.
Meanwhile, financial markets were buoyed by a thawing of U.S.-China relations after leaders of the world’s two largest economies agreed on Saturday to restart trade talks.
However, Citi analysts were skeptical that both sides would reach a deal soon.