Published: Thu, May 18, 2017
Markets | By Noel Gibbs

Russia, Saudi call for oil output deal extension

In a joint statement Opec's de facto leader Saudi Arabia and Russian Federation, the world's second largest oil producer, said they had come to the conclusion that the agreement needs to be extended.

"The reality is OPEC is really stuck [between] a rock and a hard place because the USA shale producers have proven they can easily lower their production costs", said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia. West Texas Intermediate, the USA benchmark for the price of oil, was up 3.5 percent to $49.57 per barrel.

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.

Ministers from OPEC and non-OPEC countries meet to decide policy on May 25 in Vienna.

In a joint statement that followed an earlier meeting, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak said they had agreed to prolong an existing deal until March next year. "I don't see reasons for any country to quit".

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Brent crude, the global benchmark, had risen $1.20 to $52.04 a barrel by 0847GMT and traded intraday at $52.26, the highest since April 26.

News of the deal six months ago had provided an immediate boost to prices, but the strategy contained the seeds of the plan's own downfall, because higher prices encouraged producers in the USA, which isn't party to the deal, to raise their output and invest in new production.

US drillers last week added rigs for the 17th week in a row, data from energy services company Baker Hughes showed on Friday. Surging U.S. production has raised concern that the Organization of Petroleum Exporting Countries and its partners are failing to reduce an oversupply.

But one major unknown will be the response of low-priced USA shale producers, which could undermine the unified effort to prop up the market.

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

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The Dow Jones Industrial Average declined 372.82 points, or 1.8%, to 20,606.93 for its steepest decline since 9 September. The MSCI All-Country World Index lost 0.8 percent from a record, with banks having the biggest impact across all regions.

Opec countries and countries outside the cartel participating in the deal on reducing oil production have reached a full consensus on extending the deal, Al-Falih said.

US producers still need to remove obstacles to exporting crude to new markets in Asia, said JBC analysts in a recent report. USA crude was up $1.61 at $49.45. "The surge in exports is highlighting the need for more export capacity, particularly that for berthing larger vessels", said the analysts.

In his statement last week, Novak said that oil and product draws in the OECD "will only be accelerating from here", citing the drop in floating storage barrels.

HONG KONG (AP) - A strong report shored up markets on Friday, though energy shares remained under pressure after the price of oil touched its lowest level in nearly six months.

RBC Capital Markets maintained US Foods (NYSE:USFD) as 'Outperform'
If you are viewing this piece on another site, it was copied illegally and republished in violation of USA & global copyright law. Zurcher Kantonalbank Zurich Cantonalbank bought a new stake in US Foods Holding Corp during the first quarter valued at $105,000.

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