Oil prices surged 4 percent to a three-week high on Monday, bolstered by growing conviction that major oil producing countries would agree next week to limit output.
Brent crude briefly touched $49 a barrel. The London benchmark has risen 11 percent in a week since Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, started a diplomatic charm offensive to persuade more reluctant members to join its proposed output plan.
OPEC members are due to agree to a world oil freeze pact on Nov. 30 at a meeting in Vienna, Austria. In recent days, several OPEC members including Iran, along with non-member Russia, have suggested they were leaning toward a deal to limit output.
“As we get closer to the meeting the threat that they will achieve some agreement has triggered a lot of short covering,” said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut. He added that funds were less enthused about holding positions ahead of the meeting.
Goldman Sachs analysts said in a note that chances of an OPEC cut succeeding have increased, and they believe the global oil surplus will shift into a deficit by the middle of next year, which would support prices.
“Our base case now is that an OPEC production cut will be announced and implemented,” they wrote.
Hedge funds in the week ending Nov. 15 cut their combined net long position in the three major Brent and WTI futures and options contracts by just 3 million barrels to 422 million barrels. Such moves protect against any selloff should OPEC fail to reach agreement.[CFTC/]
“You never know with OPEC – sometimes they go to the last minute, and there are a lot of false starts,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.
Russian President Vladimir Putin said he saw no obstacle to freezing oil output from its post-Soviet high of more than 11 million barrels per day.
OPEC members last week proposed a deal for Iran to cap, rather than cut, output.
Iran wants exemptions to try to recapture market share lost under years of Western sanctions and has been reluctant to limit output.
Libya and Nigeria, whose exports have been hampered by violence, have also asked to be left out of any deal.