Published: Tue, May 16, 2017
Money | By Armando Alvarado

Oil Holds Advance as Saudis, Russia Favor Output Cut Extension

Oil Holds Advance as Saudis, Russia Favor Output Cut Extension

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

The statement added that Russian energy minister Alexander Novak and his Saudi counterpart Khalid Al-Falih, who met in Beijing on Monday, had "agreed to do whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial oil inventories to their 5-year average level".

"For 2016, the US Energy Information Administration (EIA) estimates that members of the Organization of the Petroleum Exporting Countries (OPEC) earned about $433 billion in net oil export revenues (unadjusted for inflation)", the EIA said in an emailed press release.

Brent crude oil was up 30 cents at $52.12 a barrel by 0750 GMT. "As producers in the USA are expected to increase output, prices will continue to be restricted from rising".

Crude oil futures were up Tuesday, with prices headed closer to session highs reached in the prior US session, as expectations that the Organization of the Petroleum Exporting Countries will extend production cuts until early next year continued to boost trading sentiment.

United Nations condemns North Korea missile test
Kim said North Korea would stage more nuclear and missile tests in order to ideal nuclear bombs needed to deal with U.S. The missile travelled some 700km (435 miles), reaching an altitude of 2,000km and landing in the sea west of Japan.

Some analysts said that USA production could still threaten to disrupt the market balance unless the cuts were deepened.

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". Fracking has greatly increased USA oil production, leading to a lengthy period of very low oil prices.

The ministers back a plan to extend the current deal to remove 1.8 million barrels per day from the market until March 2018.

OPEC and other big oil producers, in effect, are no longer the only voice in the market. Riyadh has already dialed back its output by 500,000 barrels per day, more than any other OPEC member. Iran, which just shook off years of sanctions on its oil exports, is still trying to regain market share, not surrender its piece of the global petroleum pie. The recent increase in Libyan output, together with a surge in North American shale production and signs of recovery in Nigeria, may undercut OPEC's strategy to re-balance the market and prop up prices.

Desperate as it is, OPEC might want to be careful how much shock and awe it opts for. In April, the International Energy Agency, the Paris-based monitoring group, forecast that oil demand growth would slow in 2017 for the second straight year, citing gains in the fuel efficiency of motor vehicles in the United States in particular.

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