Oil prices rise as Saudi and Russian Federation agree to prolong output curbs

Saudi Arabia and Russian Federation, the world's top two oil producers, agreed on Monday on the need to keep the current cut in place until March 2018.

Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak are scheduled to meet in Beijing on Monday to discuss oil output policy.

Prices are up by 2 per cent since the announcement of the planned extension on Monday, compared with an over 15 per cent jump in the two days following the announcement of the initial cut on November 30, 2016.

Brent for July settlement added as much as $1.75, or 3.4%, to $52.59/bbl on the London-based ICE Futures Europe exchange.

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 previous year when the OPEC cuts were first announced". While the curbs by the producers is working, "we are not where we want to be" on the initial goal of bringing global inventories down "gently" below the 5-year average, Al-Falih said.

Futures climbed for a fifth day in NY, extending a 2.1 per cent jump Monday after the Saudi and Russian energy ministers said they favour extending curbs until the end of March.

On Monday, Russia and Saudi Arabia called for extending the output cuts ahead of an OPEC meeting on May 25.

If OPEC fails to reach a deal in May, experts predict another drastic slump in oil prices and some economic problems for the global economy.

"Today's announcement will likely further extend the oil price rebound started last week on decent stock draws and low positioning", said analysts at Goldman Sachs in a note.

It has been suggested that U.S. output, which is not included in the deal, might scupper the agreement, however, the current weak oil price makes exploitation of United States shale oil deposits marginal, so the USA also has a vested interest in seeing the oil price rise from a producer's perspective, but this is tempered as the USA is the largest market for oil. OPEC-members agreed to cut 1.2 million bpd under the deal.

"The market is certainly reacting to comments from Saudi Arabia and Russia's ministers, and it should help at least maintain current prices", Will Yun, a commodities analyst at Hyundai Futures Corp., said by phone. The American Petroleum Institute was scheduled to release data for last week at 4:30 p.m. EDT on Tuesday, with the U.S. Energy Information Administration report due at 10:30 a.m. EDT on Wednesday.

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