Oil prices have risen towards $50 a barrel on Tuesday, extending gains to more than 12 per cent in the last five sessions as traders bet Opec is inching towards a deal to reduce output.
Brent crude oil, the international benchmark, rose almost 2 per cent on Tuesday to a high of $49.96 a barrel, while US marker West Texas Intermediate gained 1.5 per cent to $49.20.
The price of Brent is now at its highest since late October, though it remains below the year-high hit above $53 a barrel shortly after Opec agreed to work towards output curbs almost two months ago.
The 14-member cartel, which is responsible for more than a third of global crude supply, is set to convene in Vienna next week to try and hammer out the details of the first supply cuts since the financial crisis.
Opec delegates attending technical discussions in Vienna this week ahead of the formal ministerial meeting on November 30 have indicated talks are advancing, raising optimism various countries’ objections to being included in supply curbs may be overcome.
Nigeria’s Opec delegate, Ibrahim Waya, told reporters in Vienna on Tuesday that the group was discussing a six-month time frame for the cuts.
“The likelihood is that everybody will be on board by the end of today,” he said according to Reuters.
Sticking points still remain, however. Iraq, the second-largest producer in Opec, has voiced objections to being included in supply cuts as it is fighting an expensive war against Islamic State and dispute the production figures Opec uses to decide the baseline of where cuts may begin.
On Tuesday Iraq’s foreign minister Ibrahim al-Jafari said it would “not be fair for us to cut oil output”.
“We think we should increase output. Iraq is in a special situation …we are at war,” Reuters reported.
Opec kingpin Saudi Arabia, which has reversed its two-year old opposition to supply curbs, has indicated Iraq should be given a supply ceiling like other members. Riyadh has, however, hinted at a degree of flexibility for its regional rival Iran as it returns from sanctions, while violence-hit members Nigeria and Libya are expected to be exempt.
Helima Croft global head of commodity strategy at RBC Capital Markets argued in a note she believes a deal would be reached next week.
“Sceptics began insisting that Opec would not be able to get a deal over the finish line even before the ink dried in Algiers. Critics contend that the cartel is full of cheaters, a looming wall of crude is coming, and the Saudi-Iran rivalry would effectively kill a deal,” Ms Croft said, adding:
However, we remain of the view that Opec will stick the landing on November 30. Our view is primarily based on the belief that the single most important country in Opec, Saudi Arabia, wants it, and that the ability of a number of suspected cheaters to cheat is constrained. Opec’s leadership is cognizant of the risks posed by failing to reach a deal.
After hitting a year-high in early October, Brent fell almost 20 per cent as doubts about the deal crept in, before the rally over the past week.
Analysts and traders have warned that failure to reach a deal could see the market quickly fall back, with the market still heavily oversupplied.
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