Oil surges to four-month high as Russians, Saudis seen in agreement

Crude climbed to the highest level in more than four months on Tuesday as Saudi Arabia and Russia were seen agreeing on whether to freeze oil production.

Benchmark U.S. crude rose $1.81, or 4.5 percent, to settle at $42.17 a barrel on the New York Mercantile Exchange, its highest close since Nov. 25.

Saudi Arabia and Russia have reached consensus on an output freeze, Interfax reported Tuesday, citing an unidentified “informed diplomatic source” in Doha. Saudi Arabia will make a final decision regardless of Iran’s position, according to Interfax. OPEC members will meet with other major producers, including Russia, to discuss capping production in the Qatari capital on Sunday.

“The market has clearly shifted to the view that an agreement will be reached,” said Mike Wittner, head of oil markets at Societe Generale in New York. “There are talks going on behind the scenes, and occasionally we get bits of information. People are going to trade on these bits of news.”

Oil has rebounded after falling to the lowest level in more than 12 years amid signs that a global glut will ease as U.S. output declines.

Saudi Arabia, the biggest OPEC producer, said previously it would agree to a cap only if it’s joined by other suppliers including Iran, while Kuwait said a deal can be done without Tehran’s support. While Iran will attend the talks, it has ruled out limiting supply as it restores exports after sanctions were lifted in January.

The likely outcome on Sunday will be “a soft agreement which would not really do anything to fundamentals,” said Jeff Currie, head of commodities research at Goldman Sachs. Anything stronger is “not in anybody’s interest right now,” Currie said

The Organization of Petroleum Exporting Countries’ next scheduled meeting is on June 2 in Vienna.

“The markets could be thinking freeze in April, maybe cut in June,” Wittner said.

Prices climbed earlier as forecasts for lower U.S. shale production signaled the global glut will slowly diminish. Output from U.S. shale formations will drop to 4.84 million barrels a day in May, the lowest in almost two years, according to a report Monday from the Energy Information Administration.

The EIA cut its 2016 U.S. oil production forecast to 8.6 million barrels a day from 8.67 million forecast in March, according to its Short-Term Energy Outlookon Tuesday.

“Prices are up on speculation that market tightening is underway,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut.

This story was originally published April 12, 2016 at 4:05 PM with the headline "Oil surges to four-month high as Russians, Saudis seen in agreement."