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Oil prices rally on co-operation hopes

Brent crude’s price has lifted 2.5pc after Russia and Saudi Arabia agreed to co-operate on production.

Saudi and Russian energy officials agreed to form a working group to monitor the market. Picture: Brittany Sowacke/Bloomberg.
Saudi and Russian energy officials agreed to form a working group to monitor the market. Picture: Brittany Sowacke/Bloomberg.

Oil prices rallied on Monday on hopes of greater co-operation between major oil producers but gave up some of the gains as investor’s questioned the likelihood of any plans gaining traction.

Brent crude, the global oil benchmark, rose 2.5 per cent to $US48.11 a barrel on London’s ICE Futures exchange after rallying more than 5 per cent in earlier trade. West Texas Intermediate futures, the US crude benchmark, were trading up 2.4 per cent at $US45.52 a barrel.

Speaking ahead of a meeting between major oil producers later this month, Saudi and Russian energy officials agreed to form a working group to monitor the market. The talks between the two heavyweight suppliers fuelled hopes that major producers will agree to an output freeze amid concerns about the persistent glut in the market.

Saudi energy minister Khalid al-Falih called the agreement a “major step” to stabilising prices. Russian energy minister Alexander Novak said he hopes that other producers will co-operate to achieve stability in the oil market.

Many on the market, however, remain sceptical of the chances of a production freeze given that OPEC has failed in the past to reach such a pact due to objections from Iran.

“It’s a political statement so it’s still vague,” said Olivier Jakob, managing director of Petromatrix, a consultancy based in Switzerland.

“The working group has been talked about before. I don’t think that it shows that there is a true mechanism for supply action yet,” he said.

The Organization of the Petroleum Exporting Countries is scheduled to officially meet in November but producers from the organisation will hold informal talks later this month at an industry conference in Algiers. Russia is also expected to attend those meetings.

Iran’s return to the global markets and Saudi Arabia’s fight for market share have been major stumbling blocks to reaching a freeze agreement.

On Saturday, Iran’s state-owned Shana news agency reported the Deputy Petroleum Minister Amir Hossein Zamaninia as saying that Iran would support any decision to restore balance in the oil market once its market share reaches the presanction level.

Iranian production could rise by as much as 1 million barrels a day within the next 3-5 years if Tehran manages to make a success of its bid to attract higher foreign investment according to New York-based Morgan Stanley. In a note the bank says that Iran intends to start inviting companies to start bidding this month with the prospect of some agreements being made by next year.

Nymex reformulated gasoline blendstock — the benchmark gasoline contract — rose 2.2 per cent to $US1.33 a gallon. ICE gasoil changed hands at $US419.25 a metric ton, up $US9.75 from the previous settlement.

Dow Jones newswires

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Original URL: https://www.theaustralian.com.au/business/markets/oil-prices-rally-on-cooperation-hopes/news-story/ba666abbec5ca9dcdf28ca1f3840aac2