Oil prices build on gains on expectation of extended crude supply cut
In order to rein in a glut, Saudi Arabia and Russia said on Monday that they agreed to the need for a 1.8 million barrels per day (bpd) crude supply cut to be extended for nine months, until the end of March 2018.business Updated: May 16, 2017 12:09 IST
Oil prices rose on Tuesday, extending gains after a joint announcement by top producers Saudi Arabia and Russia to push for an extension of supply cuts until the end of March 2018 gained traction with other suppliers.
Brent crude futures were at $52.07 per barrel as of 0612 GMT, up 25 cents, or 0.5%, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were at $49.09 a barrel, up 24 cents, or 0.5%.
In order to rein in a glut, Saudi Arabia and Russia said on Monday that they agreed to the need for a 1.8 million barrels per day (bpd) crude supply cut to be extended for nine months, until the end of March 2018.
However, there is no final deal yet despite the pledge by Saudi Arabia - the world’s top exporter and de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC) - and top producer Russia, as the 12 remaining OPEC members and other producers participating in the cuts have to agree to the extension during a meeting on May 25.
“It remains to be seen whether all countries participating in the deal will agree with the Saudi-Russian stance,” said Sukrit Vijayakar, director of energy consultancy Trifecta.
Kuwait’s oil minister Essam al-Marzouq said on Tuesday that his country supported the Saudi/Russian initiative.
However, James Woods, investment analyst at Australia’s Rivkin Securities said that oil supplies would likely remain plentiful despite an extended cut.
“As we have seen over the past six months, rising U.S. production and record inventories have kept upside limited and a nine month extension at this stage is unlikely to break that.”
U.S. bank Goldman Sachs said the deal “will likely further extend the oil price rebound... although the rally so far... has remained modest compared to the move that occurred last year when the OPEC cuts were first announced.”
Prices are up by 2% since the announcement of the planned extension on Monday, compared with an over 15% jump in the two days following the announcement of the initial cut on Nov. 30, 2016.
Goldman said that beyond the ongoing rise in U.S. oil production, which is up over 10% 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.
The bank said that “these combined volumes could largely offset the benefit of the extended cuts.”
Goldman retained its average Brent price forecast for the third quarter of 2017 at $57 per barrel.