Having hit a low of $32 a barrel on Tuesday, the international benchmark Brent crude rose above $34 overnight and continued to move towards $35 this morning after Bijan Zanganeh, the Iranian oil minister, said the country "backs any measures which help stabilise the market", referring to the agreement to freeze output at January levels.
The comments came at the end of a meeting with ministers from fellow Opec members Iraq, Qatar and Venezuela, the latter two of which are trying to build support for the deal to halt a downward spiral in the oil price that is battering budgets. Both have also agreed to hold production at last month`s total – but the accord only stands if other powers, and notably Iran, join.
Helping the upward swing was a shock drop in oil reserves in the US. The US Energy Information Administration reported stockpiles fell by 3.3 million barrels last week, notes Reuters, compared to a consensus estimate for another build of 3.9 million barrels.
But all is not plain sailing. It is worth noting that oil remains at a painful low, well below the level needed for producer companies in many areas to make a profit from extraction, and few analysts believe the current rally marks a bottom for the market. Indeed, most predict a period of intense volatility lies ahead.
Not only is output running at as much as two million barrels a day above demand – and onshore stockpiles in areas such as the US remain very near record levels – but there is also considerable doubt that Russian-Saudi deal will succeed. Critically, Iran is almost certain to insist on at least being able to return production to pre-international sanction levels.
"Such a freeze will have little impact on the oil market as proposed, while there remains high uncertainty that it even materialises, in our view," said Goldman Sachs analysts in a client note. "As a result, our oil supply and demand estimates remain unchanged and we reiterate our view that oil prices will remain volatile."
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