Published: Fri, May 19, 2017
Markets | By Noel Gibbs

Oil prices rise to $52 as Saudi, Russia back longer supply cut

Vladimir Putin, Russia's president, said later yesterday: "It's right that the decision was made not for two, three, four months but for nine months".

"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.

Although it has the backing of Saudi Arabia and Russian Federation, the world's top two crude producers, the extension will need to be formally adopted by OPEC at the its meeting next week in Vienna, and then by non-OPEC producers as well.

Earlier this month, Saudi Arabia's oil minister indicated that his country would back an extension to the cap.

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Futures climbed for a fifth day in NY, extending a 2.1 per cent jump Monday after the Saudi and Russian energy ministers said they favour extending curbs until the end of March.

Iraq, Azerbaijan and Algeria have also indicated their willingness to see the production caps through to the end of the year.

The Organization of Petroleum Exporting Countries, which produces around a third of the world's oil, and a group of non-OPEC countries led by Russian Federation, had agreed in November to keep the cuts in place through June. Some of the oversupply indicators waned last week, however, and crude oil prices are up more than 10 percent from May 8. The agreement was to run for the first six months of 2017, with a possible extension for the second half of the year.

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 on Monday.

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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. According to Bloomberg, "U.S". Production fell due to major producers' production cut deal. Sloup says it could surpass that if buoyed by higher prices.

The first source familiar with Iranian thinking said it was necessary to support prices to ensure there is enough investment in supplies to avoid shortages in future, echoing a view often expressed by Saudi Arabia.

Goldman said that beyond the ongoing rise in USA oil production, which is up over 10 per cent since mid-2016 to 9.3 million bpd, output will increase by Opec members who were exempt from the cuts, or where supply disruptions had ended, including Libya and Nigeria.

Moscow and Riyadh were the two most important players in this collection of petrostates, so it's not surprising to see Brent crude jump almost $1.50 in trading today.

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