May 19 (UPI) — Parties to an OPEC-led effort to curb production to easy supply strains have come to consensus on an extension of the deal fueled gains in oil prices Friday.
Saudi Arabia and Russia introduced a proposal at the start of the trading week to extend the agreement to curb crude oil production through managed declines into early 2018. The deal, formulated late last year and implemented in January, said originally that a six-month extension was possible if market conditions warranted the move.
The initial deal helped establish a floor under crude oil prices of around $50 per barrel, though that foundation collapsed late in the first quarter as pressure from a chronic glut of crude oil production and storage from outside OPEC, namely the United States, was slow to fade.
A report Friday from pricing group S&P Global Platts finds that, while there is still a wide-range of consensus among parties to the agreement, it’s likely that meetings in Vienna next week will result in an extension.
“Analysts are largely in agreement that, despite whatever internal tensions might exist within the coalition, the nine-month extension is the likely result of the meeting, though the text of the agreement may include some flexibility for participants to adjust their output if market fundamentals shift significantly,” the report read.
Crude oil prices were in full rally mode early Friday morning, though fundamental market factors indicate supply-side strains would kick in as higher oil prices make conditions favorable to more U.S. oil production.
The price for Brent crude oil was up 1.54 percent about a half hour before the start of trading in New York to $53.32 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, barely broke through a psychological threshold by gaining 1.4 percent from the previous close to reach $50.05 per barrel.
Crude oil prices faced headwinds during the previous session following reports that crude oil stockpiles in the United States, the world’s leading economy, declined less than some analysts predicted.
The price for Brent crude oil is about $2 less per barrel than where it started the year.
A daily report on market fundamentals from London broker PVM said controversy in Washington tied to U.S. President Donald Trump‘s actions on the probe into Russian election meddling is making some investors nervous. The president’s pro-oil initiatives are in part driving domestic confidence in the energy sector, giving support to the supply side. For demand, his protectionist policies are in part behind healthy domestic oil demand.
Describing the U.S. president as “in trouble,” PVM analyst Tamas Varga said the health of the U.S. economy could more or less withstand an early end to the Trump presidency.
“If he had to go for whatever reason, U.S. oil demand is likely to suffer but the fall is unlikely to be significant,” he said.
Elsewhere, the pace of U.S. economic growth could be providing support for Friday’s rally. The government reported the number of first-time claims for unemployment protection for the week ending May 13 was down 4,000 from the previous week and the less-volatile four-week moving average declined by 2,750.
The rally will be tested early in the trading day when Baker Hughes provides weekly data on exploration and production trends. Published as rig counts, the report will offer a glimpse into the investment appetite for energy companies working in North America.