Oil prices maintained their positive momentum, rising for a second straight day after OPEC countries called on several of the organization's members to adhere to the deal to reduce output. Adding to momentum for the commodity and further boosting prices was the commitment by Saudi Arabia - the world's number one oil exporter - to cut exports starting next month. The oil-linked loonie gained on the back of these developments, rising to a fresh multi-month high relative to the dollar. Unlike the Canadian dollar, the Russian ruble, another currency closely-related to oil, didn't manage to advance relative to the US currency.
OPEC, as well as non-OPEC producers led by Russia, discussed extending their deal to cut oil supply by 1.8 million barrels per day (bpd) during yesterday's meeting in the Russian city of St. Petersburg. The initial deal which was agreed last year and went into effect in January of this year, was originally expected to last up to the first half of 2017. As the boost it provided to oil prices was temporary, it was extended until March, 2018.
The initial deal's effectiveness to raise prices was in part dented by rising output from US shale producers who attempted to benefit from the increase in prices, placing a ceiling on the stronger upward movement in oil prices that was hoped for by the deal participants. The latest discussions are opening the way for a continuation of the deal beyond March of next year, in an effort to deplete global crude inventories.
Another significant development from yesterday's meeting, is that Nigeria, a major oil producer which was excluded from the initial deal to cut output, has voluntarily agreed to eventually (depending on Nigerian production patterns) join efforts to reduce production. A recent increase in production by Nigeria and Libya, another nation exempted from the initial deal, led to oil prices tumbling recently. Specifically, in late June, WTI and Brent crude both fell to more than eight-month lows of $42.05 and $44.35 a barrel respectively.
Moreover, Khalid al-Falih, the Saudi Energy Minister, stated that his country would reduce its exports to 6.6m bpd in August, by roughly one million barrels per day compared to a year ago. He added that global stockpiles have fallen by 90m barrels during the first six months of the year, though they currently exceed the five-year average for industrialized nations by about 250m barrels. Falih expects global oil demand to grow next year at a magnitude that outpaces the increase in US output. China is anticipated to record a double-digit increase in oil imports in the coming year.
Saudi Arabia and Kuwait have so far cut production by more than agreed, but compliance by Iraq and the United Arab Emirates has not been as strong. This is a consideration that must be addressed according to Saudi Arabia's Falih, who avoided naming specific countries and added that the committee monitoring compliance raised the issue with lagging nations. Alexander Novak, the Russian Energy Minister, said that full compliance would result to an additional 0.2m barrels being removed from the market on a daily basis.
Concluding with market movements, oil prices are posting considerable gains for a second day in a row. WTI and Brent crude oil were trading at $47.26 and $49.51 a barrel in late European trading hours, up 2.0% and 1.9% on the day respectively. In forex markets, dollar/loonie fell to a fresh 15-month low of 1.2480 in today's trading as the oil-linked Canadian dollar is benefitting from higher oil prices (Canada is a major exporter of the commodity). The Russian ruble is not experiencing similar gains as dollar/ruble is looking set for its third consecutive day of advances. The pair last traded at 59.890.