Russia, Saudi Arabia back extension of oil output cuts

Oil prices rallied after Saudi Arabia and Russian Federation said Monday they believe a deal to cut oil production should be extended for a further nine months until March 2018 in a bid to slash a global supply glut.

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. In late April, Aramco’s chief executive, Amin Nasser, said the same: that the OPEC deal had helped to bring down floating oil inventories in the first three months of 2017, again without providing any reference figures. Benchmark Brent oil prices rose, trading up $1.39 at $52.23 per barrel by 1407 GMT as the market had previously expected the cuts to be extended by as little as six months.

The news was well received by the markets and by 9.34am BST, Brent front month futures contract was up 2.49% to $52.14 (£40.30) per barrel, while West Texas Intermediate (WTI) surged 2.57% to $49.10 per barrel.

“That such a large output cut extension is a tacit admission of failure is for another day and discussion”, he said in a note.

OPEC crude production was down 535,000 bpd compared to April 2016, the largest year-on-year decline in almost three years. “They are really removing a substantive amount of the uncertainty about the upcoming decision in May”.

The feature in the marketplace early this week is a continuation of the recent rally in the crude oil market.

“We’ve come to conclusion that the agreement needs to be extended”, they said in a statement, adding that they would do “whatever it takes to achieve the desired goal of stabilising the market”.

“If people actually bought into that, we’d be up $2 or $3, not $1.50”, said David Leben, director of commodity derivatives at BNP Paribas.

The IEA data shows that demand from China remained relatively healthy.

USA bank Goldman Sachs said the deal “will likely further extend the oil price rebound… although the rally so far… has remained modest compared to the move that occurred a year ago when the OPEC cuts were first announced”.

Goldman sees long term oil prices at $45-$55 per barrel, but US producers have already said they plan to boost production at those prices.

Last week, traders increased their short positions in oil futures and trimmed their bets that prices would rise, Essner noted.

According to the IEA, the growth of oil production in countries that are not part of OPEC in 2017 will reach 600,000 barrels per day against 2016. USA crude stockpiles probably fell by 2.75 million barrels last week, according to a Bloomberg survey before a government report Wednesday.

Some analysts doubted that the producers would stick to a prolonged curb.

“OPEC no longer has the clout it once had”, he said.

After the cartel cut production, a 22 per cent bounce to a high of US$57.10 in January was erased partly as United States of America crude output and shale production rose.

The greenback also lost ground against other major rivals, including the euro, extending the weakness the dollar saw on Friday, when downbeat economic data eroded much of last week’s gain.