Oil prices hit one-month high as Opec flirts with freeze

Jessica Morris
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De facto Saudi Arabia reignited output freeze hopes last week (Source: Getty)

Crude hit a one-month high today, on rising hopes that some of the world's biggest oil producers will help markets which have been drowning in oversupply for the last two years.

Brent crude, the global benchmark, swelled 1.66 per cent to $47.75 per barrel on London's ICE Futures Exchange this afternoon, having hit 47.87 earlier in the day.

Its US counterpart, West Texas Intermediate, jumped 1.21 per cent to $45.03 on the New York Mercantile Exchange.

Read more: Oil shakes off losses after Saudis hint at action to stabilise crude market

Russian energy minister, Alexander Novak, told a Saudi newspaper today that his country was consulting with Saudi Arabia and other producers regarding ways to stabilise the market.

This fed into optimism created by Saudi Arabia energy minister Khalid al-Falih's suggestion last week that the de facto Organisation of Petroleum Exporting Countries leader was open to measures to support the market.

The 14-member bloc is due to meet on the sidelines of an energy conference in Algeria next month. It comes after a similar attempt to co-ordinate a global production freeze fell through in April.

Despite its more recent declarations, analysts maintained Opec was unlikely to act, because the current market outlook means it is effectively trapped.

"The [Opec] meeting is unlikely to yield anything because Opec are caught in a squeeze," David Hufton of oil brokers PVM wrote in a note.

Read more: Opec warns of "lingering concerns" over US and European oil demand

Hufton continued: "On the supply side it is their own increase in production that is prolonging the price depression but if they freeze or restrain production to lift prices they will stimulate competing non-Opec supply and lose market share."

Others expressed doubt over whether any such action would be able to speed up the unexpectedly sluggish market recovery.

"In our view a renewed price correction cannot be ruled out if market participants start focusing on the supply side again, for the latest drilling activity figures in the US cast doubts that the oversupply is really being eroded," Commerzbank analyst, Carsten Fritsch, said in a note.

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