Oil prices broke above $50 a barrel for the first time in five weeks as hope that the world’s largest suppliers may act to cut the glut in global supply continues to drive prices higher for a sixth consecutive day.

Brent crude moved above $50 a barrel for the first time since early July on Thursday morning before dipping back to $49.70 later in the day. But by the afternoon the market surged well above the key earlier highs to around $50.80 a barrel.

The recent rally in prices, from lows under $42 a barrel just two weeks ago, began late last week after Saudi energy minister Khalid bin Abdulaziz Al-Falih said the Oraganization of Petroleum Exporting Countries would meet in Algeria next month to discuss measures to stabilise oil market prices with major producers outside of the cartel.

The rally found further support earlier this week after Russian energy minister Alexander Novak said that his country - the world's third largest supplier of oil - was involved in the early discussions. 

Shakhil Begg, an analyst with Thomson Reuters, said oil prices bounced back as continued short covering activity sustained a rally which has propelled prices by more than 20pc since the lows of early August.

David Fuller's view

Here is a PDF of The Telegraph's article.

The Saudis’ 2H 2014 attempt to replay their successful 1970’s script - increasing oil supplies and driving the price down to knock out high cost producers - was always going to fail in the current era.  They were really targeting US shale oil production, without understanding the importance of this quantum technological leap which was beginning to tap billions of gallons of previously inaccessible oil, at increasingly commercial prices. 

In fairness to the Saudis, they were not alone.  In fact, most western oil analysts also failed to grasp the potential of this rapidly developing new technology.  They talked about high drilling costs, rapid depletion rates within a few months, while polluting water tables and triggering earthquakes.

Extracting resources has always been a messy business but arguably less so for shale oil and gas, thanks to technology.  Fast forward to today and you can see how rapidly this industry has developed from these diagrams for modern shale oil drilling. 

Consequently, the Saudis have considerably weaken their own ability to control oil prices and OPEC is no longer an effective cartel.  It can still exert some influence, however, and we have been hearing some bullish jawboning ahead of the next month’s meeting in Algeria, ostensibly to stabilise oil market prices.  Russia has been involved in these preliminary discussion. 

The Saudis should ‘declare victory’, as I have said before, and cut production.  However, that would be correctly viewed as an admission of defeat, so I do not see it happening.  Moreover, other producers would soon offset any reduction in Saudi supplies.  Jawboning aside, OPEC will be hoping for a significant global ‘event’ capable of disrupting oil production beyond the short term.    

Meanwhile, Brent Crude has risen more quickly than it fell from its June highs, indicating that demand still has the upper hand as we have seen since mid-January.  Currently, there is still no technical evidence that this partial recovery is over although some resistance can be anticipated near the June highs.