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Oil price hits 9-month high after Opec and Russia agree supply boost

Oil prices hit the highest level since March after major producers agreed to a cautious increase in output that eased fears of oversupply.

Brent crude, the international benchmark, rose 1.4 per cent to $49.39 a barrel. US marker West Texas Intermediate climbed by a similar margin to $46.51.

On Thursday evening, Russia and Opec forged an agreement to boost oil supply by 500,000 barrels a day from January, which was a quarter of what they had agreed to previously.

“The oil price is being supported by technical factors” such as the supply agreement and a weaker US dollar, said Monica Defend, head of research at fund manager Amundi.

“Developed markets remain in the grip of the second wave of the pandemic and this is reflected in poor demand for travel,” she cautioned.

“We do not expect to see oil at $55 until the second half of next year, on the basis that [coronavirus] vaccines can be widely distributed and aeroplanes are back in the sky.”

A weaker dollar boosts crude prices since it makes it cheaper for holders of other currencies to purchase the commodity. But expectations of an oil price recovery after the pandemic vary widely, with Opec bullish on consumption while forecasts from oil producers and airlines suggest a peak in demand is close.

The dollar index, which measures the buck against trading partners’ currencies, fell 0.1 per cent on Friday morning, hovering around a two-and-a-half-year low.

London’s FTSE 100 index, which has heavy weightings of oil producers, miners and commodities traders, was the best performer in Europe on Friday morning, rising 0.9 per cent. The Stoxx 600 European equity benchmark added 0.3 per cent while Germany’s Xetra Dax traded flat.

This came after the latest signs of progress in talks between US lawmakers about a second stimulus package for the world’s largest economy.

Mitch McConnell, the most senior Republican in the US Senate, said on Thursday that an agreement on a relief plan, which Republicans and Democrats have wrangled over for months, was “within reach”.

Hopes of a rebound in economic activity also lifted the price of New York-traded copper futures by 0.9 per cent to $3,511 a tonne on Friday, the highest since October 2013.

On Wall Street, futures markets signalled both the S&P 500 share index and the Nasdaq 100 would open 0.3 per cent higher, despite Friday’s non-farm payrolls numbers falling short of consensus forecasts.

Data from Bureau of Labor Statistics showed the US added 245,00 new jobs in November, far below the 469,000 posts expected by economists polled by Reuters.

The weaker than expected payroll number would usually jolt markets, said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management. But markets were looking beyond the current economic data, he added.

“People are already very very optimistic and when there is weakness, the market will look through that because they are thinking about the vaccine and economic normalisation,” he said.

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