Oil prices up over 2 per cent
Oil prices rose over $52 a barrel on Monday, up to its highest level in over three weeks, after Russia and Saudi Arabia agreed that the OPEC supply cut agreement needed to be extended.
Following a meeting in Beijing, Russian Energy Minister Alexander Novak and his Saudi counterpart Khalid al-Falih said the pact should be prolonged until March 2018, three months longer than the optional six-month extension specified in the original deal.
“When the two biggest oil producers of the world reach a consensus on the extension of a supply cut, the market will listen,” oil broker from PVM Tamas Varga, said in a report.
Brent crude finished the day up 98 cents to $51.82/barrel, down slightly from the session high of $52.63 which is the highest since April 21. US crude rose by $1.01 to $48.85.
Reuters reports oil traders were surprised by the strong wording of the announcement and are waiting to see if all current participants agree to the extension.
Some analysts are concerned that increasing US production could threaten to disrupt the rebalancing of the market unless cuts were deepened.
“We are of the camp that the extension cuts might not be enough – they might need to extend the cuts and to increase them to stabilize this market,” Oliver Sloup, director of managed futures at iitrader.com told Reuters.
Sloup adds US production is forecast to rise to about 9.31 million barrels per day (b/d) this year and it could be higher if oil prices continue to rise.
Some analysts doubt that producers would comply with the prolonged reductions.
“Extending the cuts until March 2018 would take account of the fact that demand in the first quarter of a year is lowest for seasonal reasons,” Commerxbank analyst Carsten Fritsch told Reuters.
“That said, we are skeptical about Russia’s willingness to actively participate in any extended cuts.”
Novak and Falih said they hoped other producers would agree to the cuts, which would be on the same volume terms as the current agreement.
However, Kazakhstan has said it could not agree to the extension on the same terms and Iraq says it will agree to a deal extension, but only until the end of 2017.
OPEC and non-OPEC members will meet on May 25 in Vienna to decide policy.
