By Yemisi Izuora/Agency Report
Oil price yesterday rose towards $35 a barrel after Iran welcomed plans by Russia and Saudi Arabia to freeze output and an industry report showed a surprise drop in U.S. inventories.
The gain added to a more than 7 percent surge in the previous session, which came even though analysts said 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 percent higher in the previous session. U.S. crude (CLc1) gained 69 cents to $31.35.
“It’s a continuation of yesterday’s (Wednesday) move,” said Carsten Fritsch, analyst at Commerzbank. “What we see still is extreme volatility. I would not be surprised to see prices retreating again by a big margin in coming days.”
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 Organization of the Petroleum Exporting Countries 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.
Iran exported about 2.2 million barrels per day (bpd) of crude before 2012, when sanctions imposed by world powers to curb it’s nuclear programme cut shipments to about 1.1 million 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 the American Petroleum Institute, an industry group, said U.S. crude stocks unexpectedly fell by 3.3 million barrels last week.
Traders will be looking to the official weekly supply report from the U.S. government’s Energy Information Administration (EIA).
It will be recalled that hope of possible oil price stability became glaring following agreement for a meeting between Saudi Arabia, Russia and Venezuela on wednesday.
Ibe Kachikwu minister of state for petroleum resources in an interview with Reuters said the mood inside 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 Organisation of the Petroleum Exporting Countries despite the falling price of oil, but in the last few weeks Moscow has sent mixed signals about the possibility of cooperation.
Also on Monday, Russia’s representative to OPEC said it was in talks on coordinated output cuts with individual OPEC members, mainly Venezuela, but not with the organisation itself, news agency Interfax quoted him as saying.
“The fact that the market has reacted so strongly certainly indicates that these comments are being taken seriously,” analysts at Frankfurt-based Commerzbank wrote.
However, many analysts, including the International Energy Agency, are still sceptical OPEC will cut a deal with other producers to reign in ballooning output.
“We continue to believe that if prices were to be artificially supported with production cuts it would only give more expensive forms of production more room to breathe and would only solve the problem in the short term,” Phillip Futures said in a note.
Iran is exporting 1.3 million barrels per day of crude, and will be pumping 1.5 million bpd by the start of the next Iranian year on March 20, a vice president was quoted as saying last weekend.