N. Sea crude oil price rises 7% to $35-barrel as markets take comfort in Russia-Saudi deal to cap output

N. Sea crude oil prices jumped up more than 7% by the close of trading on world markets last night on optimism that top global crude producers could reach a deal to freeze production.

Despite a surprise agreement deal between non-OPEC Russia and the group’s leader Saudi Arabia to freeze output at January levels, Iran stopped short of offering to hold back output as it wants to recoup market share it lost during years of sanctions.

Nevertheless, the benchmark Brent crude oil price gained 7.6% yesterday to $34.64 while US crude was up 6.5% at $30.92 a barrel.

The oil ministers of Saudi Arabia, Qatar and Venezuela, together with Russia said after meeting in the Qatari capital of Doha on Tuesday they had agreed to keep output unchanged from January, provided other ‘big guns’ followed suit.

Iraq and Kuwait  also said they would observe a freeze on condition that enough other large oil producers did the same.

Even if the major producers did agree to freeze or cut production, nimble U.S. shale producers could take advantage by boosting output to replace any fall in supply.

Some analysts believe the major producers, who can produce barrels at low cost, may be better off putting up with a period of low prices to drive higher-cost competitors out of business.

“A sizeable, visible and lasting cut would clearly send a bullish signal to markets – in the short-term.

“But given U.S. shale players’ ability to bounce back, and U.S. investors’ desire to pounce amid a dearth of other opportunities, this could quickly re-stimulate production, and prices could arguably stay lower in the medium-term in this case,” New York analysts JBC said in a note.