Oil rises on talk of Russia-OPEC meeting on output cuts

Oil prices were lifted on Jan 26, 2016, by talk of possible coordination between Saudi Arabia and Russia to cut petroleum output. (AFP Photo)

NEW YORK: Oil prices rose on Thursday (Jan 28) after Russia said that it could hold meetings with OPEC over possible crude output cuts that could amount to as much as five per cent per country.

But the early sharp surge in prices was pared by more than half after doubts about that possibility were raised in the market.

The US benchmark West Texas Intermediate for delivery in March rose 92 cents to US$33.22 a barrel on the New York Mercantile Exchange.

Brent North Sea crude for March, the European benchmark, finished at US$33.89 a barrel in London, up 79 cents from Wednesday's settlement. Earlier, Brent reached a three-week high of almost US$36 a barrel.

According to Russian news agencies, Energy Minister Alexander Novak said Moscow is ready to take part in a meeting of the Organization of the Petroleum Exporting Countries aimed at establishing possible "coordination".

He also said the discussions could be on up to five per cent production cuts per country, a move which would sharply tighten the international supply of crude.

Julian Jessop, head of commodities research at Capital Economics, said such a proposal "should be taken seriously" as Russia and Saudi Arabia each produce about 10 million barrels a day, representing almost 20 per cent of global supply.

But, he added, he doubted "that anything tangible will come of the latest calls for coordinated action".

Barclays Research analysts also downplayed the idea. "We remain highly skeptical that such a meeting will result in credible cuts in supply," they said in a client note.

"Thus, we see this as nothing more than an attempt to shift market sentiment, and we do not expect that it will change the physical market imbalance."

"It's possible that Russia could be testing the waters to gauge how OPEC members would respond to the idea of cuts," said Jason Bordoff, director of the Centre on Global Energy Policy at Columbia University.