Russia, Saudi Arabia back extension of oil output cuts

Although the actual meeting for OPEC and NOPEC isn't scheduled until May 25th, the timing of this announcement from the largest producer and the largest exporter (25% of global production between them), was a complete surprise and probably a testament to two things.

Energy ministers from the two countries said on Monday that supply cuts should be prolonged for nine months, until March 2018. "We've come to conclusion that the agreement needs to be extended".

Saudi Arabia and Russian Federation have agreed to extend the Opec and non-Opec oil output reduction deal for another nine months until march 2018, reports said.

Also, they hoped that additional producers would join them in cutting when the extension begins in June.

In November 2016, the OPEC member states reached an agreement to cut oil production by 1.2 million barrels per day in the first half of 2017 to boost global oil prices. The market reaction reflected how far the commitment went beyond market expectations: the consensus view over the weekend was that the output deal would be extended through the end of the year, while some market participants were also concerned that Saudi Arabia and Russian Federation, the two biggest exporters, would abandon restraint completely rather than lose any more global market share to American producers.

The decline in export revenues is "mainly a result of the fall in average annual crude oil prices during the year", the EIA said.

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"Crude production was down 535,000 barrels per day compared to April 2016".

Oil and gas companies, which make up 13.6% of the index, benefitted from the rise in oil prices with Premier Oil up 3.8% to 61.25p while BP climbed 1.1% to 465p.

James Woods, investment analyst at Rivkin Securities, said world oil supplies would probaly remain plentiful, even if Opec extended the production cuts.

In addition, US oil production is rising very quickly and is now up more than 10 per cent since mid-2016 to 9.3 million bpd. Economists forecast that job creation bounced back last month after a disappointing March, in the latest sign of U.S. economic strength supporting the Fed's plans for more interest rate increases this year.

Goldman retained its average Brent price forecast for the third quarter of 2017 at US$57 per barrel. He said the longer extension was needed to balance supply and demand on the global oil market.

"If producers maintain their cuts at the current pace, it could push the market into a small deficit by the fourth quarter, " Edward Bell, Director for Commodity Research at Emirates NBD in Dubai said.

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