Oil surges after OPEC indicates it will maintain output cuts

Oil rose to multi-week highs on Monday after OPEC indicated it will likely maintain production cuts that have helped support prices this year, while tensions continued to escalate in the Middle East. Brent crude was up by 96 cents, or 1.3%, at $73.17 a barrel by 0227 GMT, having earlier touched $73.40, the highest since April 26. U.S. West Texas Intermediate crude was 82 cents, 1.3%, higher at $63.58 a barrel. The U.S. benchmark reached $63.81 earlier, the highest since May 1. Saudi Energy Minister Khalid al-Falih said on Sunday there was consensus among the Organization of the Petroleum Exporting Countries (OPEC) and allied oil producers to drive down crude inventories "gently" but he would remain responsive to the needs of a "fragile market."

United Arab Emirates (UAE) Energy Minister Suhail al-Mazrouei earlier told reporters that producers were capable of filling any market gap and that relaxing supply cuts was not "the right decision."  Meanwhile, U.S. President Donald Trump threatened Tehran on Sunday, tweeting that a conflict would be the "official end" of Iran, while Saudi Arabia said it was ready to respond with "all strength" and that it was up to Iran to avoid war. The rhetoric follows last week`s attacks on Saudi oil assets and the firing of a rocket on Sunday into Baghdad`s heavily fortified "Green Zone" that exploded near the U.S. embassy.

"Al-Falih and the UAE both put paid to suggestions of increasing production over the weekend and then President Trump essentially telling Iran to bring it on, was a perfect short-term storm for oil prices," Greg McKenna, strategist at McKenna Macro, told Reuters by email. 

OPEC, Russia and other non-member producers, an alliance known as OPEC+, agreed to reduce output by 1.2 million barrels per day (bpd) from Jan. 1 for six months to prevent inventories from increasing and weakening prices. "This second half, our preference is to maintain production management to keep inventories on their way declining gradually, softly but certainly declining towards normal levels," al-Falih told a news conference after OPEC and other producers met. Russian Energy Minister Alexander Novak earlier said an easing of cuts had been discussed and the supply situation would be clearer in a month, including from countries under sanctions.

Another bullish signal was a second week of declines in U.S. drilling operations, with energy companies cutting oil rigs to the lowest since March 2018. The rig count, an early indicator of future output, fell by 3 to 802, General Electric Co`s Baker Hughes energy services unit said on Friday.