Oil jumps as Saudis, Russia favor extending output deal to 2018

Javier Howell
May 16, 2017

Oil prices are rebounding to a two-week high after the energy ministers of Saudi Arabia and Russian Federation released a joint statement in which they said production cuts by major oil producers should be extended until March 2018.

After a meeting in Beijing this weekend, Novak and his Saudi Arabian counterpart Khalid al-Falih, who previously hinted at the cuts continuing, issued a joint statement calling for the agreement to continue until March 2018.

The Organization of the Petroleum Exporting Countries (OPEC) lost $76 billion in 2016 due to low oil prices caused by rising U.S. oil production, according to a report published Monday by the U.S. Energy Information Administration (EIA).

Brent crude was at $51.66 a barrel at 4.10am GMT, up 82c, or 1.6%, from its last close.

U.S. West Texas Intermediate (WTI) crude was at $48.85 per barrel, up $1.01, or 2.1 percent.

Russian Federation and Saudi Arabia are ready to extend the agreement on reducing oil production for another 9 months, until the end of March 2018. The biggest reason for that is, of course, the United States, whose shale producers have seized on this petrostate plan as an opportunity to once again crank output back above 9 million barrels per day.

Financial traders have increased their stakes in the Brent and WTI markets as speculators are taking positions that either OPEC and Russia's effort to support prices will work out, or prices will drop again because of the surge in US supply.

In late November, OPEC agreed to cut production by 1.2 million barrels a day, the first such reduction agreement since 2008.

In currencies, the greenback nursed deep losses after a weak US manufacturing report trimmed expectations of a USA rate increase next month, a key factor behind the dollar's gains in recent weeks. The conclusion forced itself despite overcompliance on the part of Saudi Arabia, Angola, and Qatar.

Crude sank to a five-month low earlier this month, rattled by concern over increasing USA crude output that has shaken investors' faith in the ability of OPEC to rebalance the market. The two countries plan to present their position to the other producing nations at the May 25 OPEC meeting in Vienna. Today Libyan oil output creeps higher ahead of OPEC decision on cuts.

USA output has risen more than 10% since the middle of past year, and data released on Friday by oil services firm Baker Hughes showed that the number of active rigs across the country rose for the 17th week in a row.

"The market will also be looking at export cuts and not just production cuts, which is what is required to rebalance the market, " Virendra Chauhan, Singapore-based analyst at Energy Aspects said.

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