Oil rises to more than three week high on Saudi, Russia call

North Korean leader Kim Jong Un inspects the defence detachment on Jangjae Islet and the Hero Defence Detachment on Mu Islet located in the southernmost part of the waters off the southwest front in this undated

Rosalie Gross | 16 May, 2017, 07:40

US crude rose by $1.43 to $49.26.Oil traders were surprised by the strong wording of the announcement, though it remained to be seen whether all countries participating in the deal would agree with the Saudi-Russian stance.

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 Monday in Beijing alongside his Russian counterpart, Alexander Novak.

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

The next round of cuts will be on the same terms as the existing deal, Saudi energy minister Khalid al-Falih said at a joint briefing in Beijing with his Russian counterpart Alexander Novak.

The last OPEC meeting in November 2016 sparked a big rally as short positions were closed and fresh longs established ("Saudi Arabia engineers big shift in oil market sentiment", Reuters, Dec. 13). "Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018".

Prices of other commodities, including copper and aluminium, tracked the moves in oil, National Australia Bank Currency Strategist Rodrigo Catril said in note, adding that this "helped commodity-linked currencies outperform".

Amid the cutbacks, USA production has risen to the highest level since August 2015.

Brent crude was US$51.88 per barrel at 2.55pm Singapore time, up 2.1 per cent from its last close, at a level last seen early this month.

These would be phenomenal achievements for a country which was pumping just 600,000 barrels of oil per day when Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries had reached an agreement to slash production late a year ago.

Copper rose 0.94 percent to $5,611.50 a tonne.

While OPEC ministers will meet May 25 to decide whether to go forward with an extension of their cuts that started January 1, concerns remain about the pace of production growth.

The nearest crude spreads are also at their least bearish since the end of March, a sign that traders of physical oil barrels, as well as speculators, see improved fundamentals in the market, Varga said.

The two countries agreed Monday to lower their production levels for nine months longer than originally agreed, through March.

"We have, before coming to this announcement today, reached out to many of our colleagues within and outside OPEC, and I think there is general consensus that this is the right approach and the right thing to do", he said of the proposal to extend the curbs for 9 months.

Meanwhile, two OPEC members that were exempt from reducing output because of internal strife are boosting supplies.

"What OPEC, and to some extent Russian Federation, and these other countries have been doing since the price collapse of 2014 is pretending to manage the market", said Robert McNally, a former White House energy adviser who is president of the Rapidan Group, a Washington-based research firm, and the author of a recent book on oil booms and busts titled "Crude Volatility". It's unclear whether the countries would still be exempted if the deal is prolonged.

"It is now becoming very clear that the cuts aren't making the oil market rebalance sooner", said Rob West, a partner at Redburn, a market research firm in London.

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Oil rises to more than three week high on Saudi, Russia call

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