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tiptrot.com June 26, 2017


Saudi Arabia, Russia agree oil output cuts until March 2018

16 May 2017, 07:04 | Cedric Leonard

Oil prices extended sharp overnight gains in North American trading on Monday, after Saudi Arabia and Russian Federation agreed to extend oil output cuts for a further nine months until March 2018 in a bid to erode a global crude glut.

While output curbs that started January 1 are working, global inventories aren't yet at the level targeted by OPEC and its allies, Saudi Energy Minister Khalid Al-Falih said in Beijing alongside his Russian counterpart, Alexander Novak.

Saudi Arabia's Energy Minister Khalid al-Falih (L) and Russia's Energy Minister Alexander Novak attend a joint briefing in Beijing, China May 15, 2017.

World oil prices jumped on Monday, with US crude futures trading 3% firmer at more than $49 a barrel.

Brent crude, the global benchmark, had risen US$1.54 to US$52.38 a barrel by 1005 GMT (6.05 a.m. ET) and traded intraday at US$52.52, the highest since April 24.

The price for West Texas Intermediate hit a five-month low, with the June futures contract losing $2.30 United States of America to end the day at $45.52.

"Extending the cuts until March 2018 would take account of the fact that demand in the first quarter of a year is lowest for seasonal reasons", said Commerzbank analyst Carsten Fritsch.

Opec countries and countries outside the cartel participating in the deal on reducing oil production have reached a full consensus on extending the deal, Al-Falih said.


This agreement was initially planned in November where OPEC members agreed to cut output by 1.2 million barrels a day. Current US production is at 9.3-million barrels a day, up more than 10% since its mid-2016 trough.

Russian Federation is the world's biggest oil producer, while Saudi Arabia is the biggest exporter.

US drilling activity last week rose to its highest since April 2015.

Another forecast for rising supply from America's shale fields is "exactly the type of thing that undercuts" supportive headlines from OPEC and Russia, Kilduff said.

Its US counterpart West Texas Intermediate fell below $45 at the end of last week and after a similar rally, was down 0.1 per cent at $46.19 a barrel this afternoon.

However, Libya have increased output and North America have also surged in production, which is likely to undercut OPEC's strategy to re-balance the market and prop up prices.

OPEC and non-OPEC countries will meet in Vienna on 25 May to decide whether they will extend the original cuts, which are due to end in June.

"With any extension likely to keep prices elevated, it will be interesting to see whether the U.S. can continue to ramp up production on the same scale as it has in recent months".



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