Oil surges to 2016 highs on reported Saudi-Russian deal

An oil rig. (AFP Photo)

NEW YORK: Oil prices surged on Tuesday (Apr 12) to 2016 highs on reports of an agreement between Saudi Arabia and Russia on freezing output.

US benchmark West Texas Intermediate for delivery in May gained US$1.81 at US$42.17 a barrel on the New York Mercantile Exchange. That was the highest close since November.

In London, Brent crude for June delivery, the European benchmark, finished at US$44.69 a barrel, up US$1.86 from Monday's close.

Oil extended a week of gains amid speculation that a meeting of OPEC and non-OPEC producers on Sunday in the Qatari capital of Doha could produce some measure of relief to the global oil glut that has depressed prices.

Moscow and Riyadh have reached a "consensus" over freezing oil production, the Russian news agency Interfax reported on Tuesday, citing an "informed diplomatic source in Doha".

Mike Lynch at Strategic Energy & Economic Research said that Tuesday's rally was fueled both by the Doha speculation and the general feeling that the market had hit bottom.

"I think people are looking ahead to this Doha meeting but I honestly think they're overreacting and getting ahead of things," he said. "Partly what we're seeing now is some momentum trading: People see other people buying and they're afraid."

CMC Markets analyst Jasper Lawler also sounded a note of caution on a Saudi-Russia deal. "The agreement has theoretically been in place since Feb 16. It's the details of quotas and the involvement of other countries - notably Iran - that is yet to be resolved," he said.

Key OPEC member Iran has been raising output since nuclear-linked sanctions were lifted in January and has signaled it will not join the freeze calls.

Oil prices crashed from around US$115 a barrel in June 2014 to under US$30 a barrel in February, before recovering to trade above US$40 a barrel this week.