Russian Federation and Saudi Arabia Commit to Oil Cuts Through Next Year

Oil prices jumped by over 1.5 per cent on Monday after the Saudi Arabian and Russian energy ministers said in a joint statement that an OPEC-led crude production cut would be extended from the middle of this year until March 2018.

Meeting on the sidelines of China's One Belt One Road conference in Beijing, energy ministers from the two countries said supply cuts should be prolonged for a further nine months, ie, until March 2018, from June 2017 as originally scheduled, to rein in a global glut that is preventing prices from firming up.

Benchmark futures prices for US crude rose 3.2% on the news to trade at $49.41 a barrel by 0800 Eastern Time, while shares in big shale oil and gas companies such as and Whiting Petroleum were also higher.

The price for Brent crude oil was up 3.25 percent about a half hour before the start of trading in NY to $52.52 per barrel. US West Texas Intermediate (WTI) crude was at $48.62 per barrel, up 78 cents.

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The extension will initially be on the same volume terms as before, although the ministers said they hoped other producers would join the efforts.

OPEC countries and countries outside the cartel participating in the deal on reducing oil production reached a full consensus on extending the deal, Khalid Al-Falih told reporters. How anxious they are about the rise of USA shale's increase, now at 9.3 million barrels per day (BPD), and it's very detrimental effect on their national finances.

Saudi, the defacto leader of OPEC, and Russian Federation, the world's biggest producer, together control a fifth of global supplies.

"Falih said the next round of cuts will be on the same terms as the first curbs deal, to cut nearly 1.8m barrels a day", says the Financial Times.

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USA drilling activity last week rose to its highest since April 2015.

Oil has gained support from the deal but inventories remain high and rising output from other producers, such as the United States, is keeping prices below the $60 that top exporter Saudi Arabia would like.

OPEC's report published Friday blames the USA fracking, in particular for its losses.

Oil producers have been trying to boost prices, as crude futures trade around $50 a barrel, less than half their level from early 2014, though above the low of below $30 in early 2015.

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"With any extension likely to keep prices elevated, it will be interesting to see whether the USA can continue to ramp up production on the same scale as it has in recent months". They will present their position to other countries ahead of a meeting between Opec and other producing nations later this month in Vienna.

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