Oil jumped to the highest since July 2015 after Saudi Arabiasignaled it's ready to cut output more than earlier agreed andnon-OPEC countries including Russia pledged to pump less nextyear.

Futures rose as much as 5.8% in New York and 6.6% in London.Saudi Energy Minister Khalid Al-Falih said Saturday the biggestcrude exporter will “cut substantially to be below” the targetagreed last month with members of OPEC. His comments followed adeal by 11 non-OPEC countries including Mexico to join forces withthe group and trim output by 558,000 barrels a day next year, thefirst pact between the rivals in 15 years.

U.S. oil futures have gained about 20% since the Organization ofPetroleum Exporting Countries agreed on Nov. 30 to cut output forthe first time in eight years. Saudi Arabia, which initiated OPEC'sdecision in 2014 to pump without limits, is leading efforts to takeback control of the market. The OPEC and non-OPEC plan encompassescountries that supply 60% of the world's crude, but excludes majorproducers such as the U.S., China, Canada and Brazil.

“This signals Saudi Arabia aims to hasten the oil marketrebalancing,” said Giovanni Staunovo, an analyst at UBS Group AG inZurich. It's “likely to trigger oil-inventory drawdowns at thestart of 2017.”

West Texas Intermediate for January delivery rose as much as$3.01 to $54.51 a barrel on the New York Mercantile Exchange, thehighest level since July 2015. The contract was trading at $53.89at 9:57 a.m. in London. Prices gained 3.5% over the previous twosessions to close at $51.50 a barrel on Friday.

Brent for February settlement jumped as much as $3.56 to $57.89a barrel on the London-based ICE Futures Europe exchange. Theglobal benchmark crude traded at a $1.97 premium to FebruaryWTI.

Into Deficit

“Assuming reasonable compliance levels, these cuts will beenough to push the market into deficit,” Neil Beveridge, asenior analyst at Sanford C. Bernstein in Hong Kong, said by email.“This level of coordination is unprecedented.”

“I can tell you with absolute certainty that effective Jan. 1we're going to cut and cut substantially, to be below the levelthat we have committed to on Nov. 30,” Al-Falih said Saturday inVienna. The Saudi minister added that the country was ready to takeproduction below 10 million barrels a day, a level it has sustainedsince March 2015.

Al-Falih and his Russian counterpart Alexander Novak alsorevealed Saturday they have been working for nearly a year on theagreement, meeting multiple times in secret. OPEC two weeks agoagreed to reduce its own production by 1.2 million barrels a day,and Saudi Arabia has long insisted that any cuts by the group beaccompanied by action from other suppliers.

“The reality is both Saudi and Russia desperately need higherprices, with oil their No. 1 export,” said Michael McCarthy, chiefmarket strategist at CMC Markets in Sydney. “Agile U.S. shaleproducers will jump back into production on West Texas well before$60 a barrel.”

U.S. explorers rushed back to the shale patch with the largestweekly addition of oil rigs since July 2015, according to BakerHughes. The ideal price for oil is about $60 a barrel, because anyhigher would unleash a surfeit of shale production, NigerianMinister of State for Petroleum Emmanuel Kachikwu said in aBloomberg TV interview. OPEC output rose last month to 33.787million barrels a day on increases from Libya, Nigeria and Angola,according to independent estimates known as secondary sources, saidperson familiar with the data.

From: Bloomberg News

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