Brent oil trades above $56 as Saudis see market balanced by June

London: Brent oil traded above $56 a barrel after Saudi Arabia said output cuts from Opec and other producers will balance the market by June.

Futures added 0.8 per cent in London after advancing 0.7 per cent Monday. The compliance level of reductions and the outlook for rising global demand should be enough to balance the market by the end of the first half of 2017, meaning the six-month deal probably won’t need to be extended, Saudi Arabia’s Energy Minister Khalid Al Falih said. Output from China, which is not part of the production deal, is forecast to continue its decline this year.

Brent has gained since the Organisation of Petroleum Exporting Countries and 11 other nations agreed late last year to trim supply by about 1.8 million barrels a day, but the rally’s momentum has fizzled amid concern that rising prices would spur more supply. While Middle East producers have signalled they’re sticking to the cuts, the US recently raised this year’s output forecast.

“The decision by Opec and non-Opec countries to cut up to 1.8 million barrels a day of production will fundamentally change supply-demand balances in 2017,” said analysts at Sanford C. Bernstein & Co. including Oswald Clint. “Despite the inevitable impact of encouraging US activity, this should lead to a significant cut in oil inventories in the first half.”

Brent for March settlement traded at $56.33 a barrel, up 47 cents, on the London-based ICE Futures Europe exchange at 9:31am in London. The contract gained 41 cents to $55.86 a barrel on Monday. Prices have averaged about $55 since the start of December. The global benchmark crude traded at a premium of $2.52 to West Texas Intermediate.

Output Cuts

WTI for February delivery rose 60 cents from Friday’s close to $52.97 a barrel on the New York Mercantile Exchange. Monday’s transactions will be booked with Tuesday’s because of the Martin Luther King Jr. holiday in the US.

Many countries are “going the extra mile” in making deeper production cuts than they pledged, and Opec will stop intervening in the market once global crude inventories return to their five-year average, Al Falih said on Monday. Demand will pick up in the summer and Opec wants to make sure markets are well-supplied, he said.