Oil price on Thursday rose towards $35 a barrel and an industry report showed a surprise drop in the United States (US) inventories after Iran welcomed plans by Russia and Saudi Arabia to freeze output.
The gain added more than 7 per cent surge in the previous session which came even though analysts said that the market had overreacted to Iran’s support for the caps and the Russian-Saudi move would not likely reduce the global surplus.
Brent (LCOc1) rose 38 cents to $34.88 a barrel, having closed 7.2 per cent higher in the previous session, while the US crude (CLc1) gained 69 cents to $31.35.
“It’s a continuation of yesterday’s (Wednesday) move. What we see still is extreme volatility. I would not be surprised to see prices retreating again by a big margin in the coming days,” an analyst at Commerzbank, Carsten Fritsch, said.”
The Iranian oil minister, Bijan Zanganeh, met counterparts from Venezuela, Iraq and Qatar on Wednesday but did not say whether Iran would cap its output in keeping with the move by Russia and Saudi Arabia. Oil has collapsed from levels above $100 a barrel seen in mid-2014 due to excess supply in a slide that deepened after the Organisation of the Petroleum Exporting Countries (OPEC) later that year dropped its policy of cutting supply to boost prices.
“The agreement will do little to reduce the current supply glut,” BMI Research said in a report yesterday.
Before 2012 when sanctions imposed by world powers to curb it’s nuclear programme cut shipments to about 1.1 million bpd, Iran exported about 2.2 million barrels of crude per day (bpd). The sanctions were lifted last month, allowing Iran to resume selling oil to the European Union. Sources familiar with Iranian thinking have said this week that Iran would not freeze output at current levels.
Crude gained support after an industry group, the American Petroleum Institute, said that the US crude stocks unexpectedly fell by 3.3 million barrels last week. Traders will be looking to the official weekly supply report from the US government’s Energy Information Administration (EIA).
The hope of possible oil price stability became glaring following the agreement for a meeting between Saudi Arabia, Russia and Venezuela on Wednesday. The minister of state for petroleum resources, Ibe Kachikwu, in an interview with Reuters said that the mood inside the OPEC was shifting to a growing consensus that a decision must be reached on propping up prices.
Russia has repeatedly refused to cooperate with the OPEC despite the falling price of oil, but in the last few weeks Moscow has sent mixed signals about the possibility of cooperation.