The price of oil is jumping for a third consecutive day on Monday after some reassurance for the markets that oil’s biggest players are working to try and stabilise the world’s most important commodity.
Both major oil benchmarks are up by just less than 1% at around 10:10 a.m. BST (5:10 a.m. ET) on Monday, with Brent crude, the international benchmark higher by 0.94% to $47.41 per barrel. US West Texas Intermediate crude is up by the same margin to trade at $44.91.
The rise is largely down to comments from Russian oil minister Alexander Novak — often cited as the most important man in the oil industry — that Russia and Saudi Arabia are working together to create “market stability.”
Novak was quoted by Reuters as having given an interview with Saudi newspaper Asharq al-Awsat, in which he said (emphasis ours):
“With regard to the cooperation with Saudi Arabia, the dialogue between our two countries is developing in a tangible way, whether in the framework of a multi-party structure or on a bilateral level.
“We are cooperating in the framework of consultations regarding the oil market with OPEC countries and producers from outside the organisation, and are determined to continue dialogue to achieve market stability,” he added.
“We are ready to achieve the widest possible level of coordination… and put in place joint measures to achieve oil market stability, with the condition that these measures will not be for a limited period of time.”
Russia and Saudi are probably the two most important oil producers on the planet, with Saudi Arabia the de-facto leader of OPEC, and Russia the biggest non-OPEC producer. What the two nations do with regards to oil policy has profound impacts on the markets. For example, at April’s massively anticipated OPEC meeting about a freeze in production, Saudi refused to co-operate unless Iran joined in any production freeze, and, as a result the meeting ended up as a damp squib.
With both nations starting to work together to, hopes for a solution to the massive glut in the oil industry are rising. That glut has sent prices tumbling in recent weeks, with the commodity back into a bear market, down 20% from its recent high in June. Here is how that looks:
Novak’s comments come just three days after a report from the highly respected International Energy Agency argued that the supply and demand imbalance plaguing oil is only going to get worse in 2017, something that will further depress prices.
Global demand for oil will slow at a greater rate than first thought in 2017, according to the latest oil-market update from the IEA, intensifying the oil industry’s supply-and-demand imbalance.
The IEA’s August update on the state of the oil markets said global demand in 2017 would slow to 1.2 million barrels a day from the 1.3 million previously expected. The prognosis is a result of what the agency calls a “dimmer macroeconomic outlook.”
It should be noted that along with Novak’s comments, oil markets are also likely still reacting to the news that the Baker Hughes rig count, which shows how many active oil rigs there are in the USA, increased for a 7th consecutive week.