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Riyadh, Moscow agree to extend oil output cuts

Riyadh, Moscow agree to extend oil output cuts

Saudi Arabia›s Energy Minister Khalid Al-Falih (L) and Russia's Energy Minister Alexander Novak attend a joint briefing in Beijing on Monday.

"When the two biggest oil producers of the world reach a consensus on the extension of a supply cut the market will listen", said Tamas Varga of oil broker PVM in a report, of the rise in prices on Monday.

Oil prices surged on Monday (15 May), after Saudi Arabia and Russian Federation agreed to extend an agreement to cut output for a further nine months until March next year.

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. "Global benchmark Brent crude added 1.7 per cent to US$51.69 on the ICE Futures Europe exchange".

Yet, OPEC's own production rose in April, by 65,000 barrels daily last month, to 31.78 million bpd, with increased production in Nigeria and Saudi Arabia compensated for production outages in Libya and lower production rates in Iran, both exempt from the cut agreement.

OPEC members agreed in November to cut 1.2 million barrels a day of oil production.

Goldman sees US crude oil at ~$55/bbl at the end of 2017 and Brent at $57.




Still, even if the Organization of Petroleum Exporting Countries and its partners prolong their measures when they meet next week, inventories will probably remain above average at the end of the year, it said.

It didn't really work, so Opec and a few other producers cut production hoping to revive prices.

"It has taken some time for stocks to reflect lower supply when volumes produced before output cuts by OPEC and eleven non-OPEC countries took effect are still being absorbed by the market", the report 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.

But oil at above Dollars 50 a barrel has, in turn, attracted higher-cost producers in the United States back to the market, and frantic American drilling will push non-OPEC supply throughout the year, the IEA predicted.

Since then Opec ministers have issued a flurry of supportive statements to assure the market that a deal is likely to come from the May 25 meeting.

OPEC members agreed in November to cut output by 1.2 million barrels a day, and several non-members, including Russian Federation, agreed in December to contribute a combined 600,000 barrels a day of reductions. Also, U.S. oil production is up more than 10 percent since mid-2016.

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