Russia, Saudi Arabia back extension of oil output cuts

Violet Tucker
May 17, 2017

Oil prices jumped by over 1.5 percent on Monday after the Saudi Arabian and Russian energy ministers said in a joint statement that an OPEC-led crude production cut would be extended from the middle of this year until March 2018.

Oil and gas-related stocks piqued investors' interest on reports that oil giants Saudi Arabia and Russian Federation agreed to extend production cuts till March 2018.

Global benchmark Brent crude was up $US1.24 at $US52.08 a barrel by 1.40pm in NY, having touched $US52.63, the highest since April 21. "Global benchmark Brent crude added 1.7 per cent to US$51.69 on the ICE Futures Europe exchange".

The statement's strong wording surprised markets and the move is expected to go a long way to ensure that other OPEC members and producers who participated in the initial round of cuts fall into line.

The EIA said it expects OPEC's total oil export revenues to increase in 2017 and 2018 because of gains in crude oil prices.

The largest of the 24 producers that agreed to a deal to cut supply for six months starting in January are reaffirming their commitment to the agreement amid growing doubts over its effectiveness so far.

The ministers will consult with other oil-producing countries with "the goal of reaching full consensus on the 9-month extension" they are seeking, according to the statement.

The cuts were agreed by OPEC in November of last year and represented the first agreement of its kind in eight years, in an attempt to curb the oil rout caused by excessive oversupply.

"The pressure is now on officials to deliver on these pledges", said James Woods, global investment analyst at Australia's Rivkin Securities.

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"Our view is based on oil prices remaining relatively stable at the US$50 per barrel levels in 2017, enough for oil majors to restart their capex plans, considering the lower cost of production and better efficiencies in the sector".

The ministers agree the deal should be extended through the first quarter of next year at the same volume of cuts, Al-Falih said. And two, their determination to take the bull by the horns and set their oil price marker down early.

"Russia and Saudi Arabia may be trying to coordinate a push to keep access to their most important market (China) in their favour and encourage Chinese importers to displace alternative cargoes", said Emirates NBD'sBell.

USA production is now forecast to average about 9.31 million bpd this year - a level reached already, according to government figures.

As OPEC and its allies curb supply, production in the US, which is not part of the agreement, has risen to the highest level since August 2015 as drillers pump more from shale fields.

An Opec source familiar with the market situation told Reuters earlier yesterday that oil inventories in floating storage have declined by one-third since the start of the year.

United States crude stockpiles are forecast to have declined by 2.75 million barrels to 519.8 million barrels in the week ended May 12th, according to a Bloomberg survey of analysts.

WTI peaked just above $49.50 p/b during the USA session on Monday before being subjected to corrective selling and a retreat back to lows near $48.75 at the Asian open.

Other reports by Guamnewswatch

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