Finance

Oil Reacts To Saudis, Russia's Comments On Extending Output Deal To 2018

Oil Reacts To Saudis, Russia's Comments On Extending Output Deal To 2018

In order to rein in a glut, Saudi Arabia and Russian Federation said on Monday that they agreed the need for a 1.8 million barrels per day (bpd) crude supply cut to be extended for nine months, until the end of March 2018.

Brent crude, the global benchmark, had risen $1.50 to $52.34 a barrel by 1152 GMT and traded intraday at $52.52, the highest since April 24.

Longer cuts at already agreed-upon volumes are needed to reduce global inventories to the five-year average, the energy ministers of the world's biggest crude producers said at a joint press briefing in Beijing yesterday.

The Organisation of the Petroleum Exporting Countries (Opec), of which Saudi Arabia is the de facto leader, and other producers, led by Russian Federation, pledged late last year to cut output by 1.8 million barrels per day (bpd) during the first half of this year.

The main reason why oil prices remain low is that supply outstrips demand.

Oil prices hit a three-week high after the announcement, while shares of oil majors Exxon and Chevron were up 1 percent in premarket trading.

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In early December 2016, OPEC countries and eleven non-OPEC nations agreed to slash the total oil production by 1.8 mln barrels per day in the first half of this year in order to cut global oil stocks to the latest five-year average.

There's still concern that a surge in U.S. production, together with an increase in Libyan output and signs of recovery in Nigeria, may undercut the Organization of Petroleum Exporting Countries' strategy to stabilize the market and prop up prices. The May 25 meeting is when a final decision will be made on the nine-month extension.

Woods also said that oil supplies would likely remain plentiful despite an extended cut.

The overall outlook for the non-OPEC countries, eleven of which were voluntarily cutting production to support OPEC, pointed to faster growth than previously anticipated in 2017, the IEA said. But this agreement pushes the lower production through March of 2018 in a sign that stubborn crude oversupply will continue to weigh on oil prices. The original goal of the OPEC-led cuts was to raise prices to around $60, but the reality is that $55 Brent may be the best that the cartel and its customers can do.

USA oil output witnessed a steep growth in the last one year by almost 10% since mid-last year and touched 9.3 million bpd production.

"That said, we are skeptical about Russia's willingness to actively participate in any extended cuts".


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