Oil prices rise as Saudi and Russia agree to prolong output curbs

Jay Anderson
May 19, 2017

"Saudi seems very determined to push oil prices higher by making this joint statement now", said Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore. Some of the oversupply indicators waned last week, however, and crude oil prices are up more than 10 percent from May 8.

"This statement shows the commitment by Opec and major non-Opec oil producers to bringing stability to the oil market, in which is essential to have security of supply in coming years", said one of the sources. Shale is OPEC's friend.

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

However, a relentless rise in US drilling activity is undermining efforts by OPEC and Russian Federation to prop up the market. Their announcement sparked a rally in oil prices, which had sagged on signs the cutbacks made so far haven't significantly depleted the world's brimming fuel inventories.

In its monthly oil market report, the Paris-based group noted Libya has raised oil production to 800,000 barrels a day, the highest point in three years, according to its preliminary data.

"We've come to conclusion that the agreement needs to be extended".

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On Monday, Russia and Saudi Arabia called for extending the output cuts ahead of an OPEC meeting on May 25.

OPEC wants to reduce global oil inventories to their five-year average but so far has struggled to do so.

West Texas Intermediate for June delivery climbed 17 cents, or 0.4 per cent, to $49.02 a barrel on the New York Mercantile Exchange in Hong Kong.

In November a year ago, OPEC and other major global producers, including Russian Federation, agreed to cut output by about 1.8 million barrels per day between January and June, but so far the move has had little impact on inventory levels.

Opec ministers are due at the end of this month to meet in Vienna to discuss the extension of output curbs, seeking to reach agreement among all participating members inside and outside the cartel.

Crude futures were building on their overnight gains Tuesday morning in Asia, amid expectations that United States data this week will show draws in crude and refined product inventories for the week ended May 12. The latter would be helped by higher refinery runs after the spring maintenance season, with the IEA expecting these to rise by 2.7 million bpd globally by the start of July.

Other reports by BadHub

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