Oil prices move up on hopes supply glut may ease

North Korean leader Kim Jong Un waves to the Korean People's Army construction department officials in Pyongyang

"We will have to see how much demand picks up as increasing USA output continues to cap crude prices from rising, despite the efforts made by OPEC and its allies to reduce production", Will Yun, a Seoul-based commodities analyst at Hyundai Futures Corp., said by phone.

In a joint statement issued after the briefing, both ministers agreed to do whatever it takes to reduce global inventories to their five-year average and expressed optimism they will secure support for the extension from other producers.

After the energy ministers of Saudi Arabia and Russian Federation talked up the potential for the Organization of Petroleum Exporting Countries and other nations to extend output cuts into early 2018, the crude market took off. OPEC's preferred market structure returned, with nearer contracts at a premium further along the curve, with Brent and West Texas Intermediate crude rising above their key 200-day moving averages in intraday trading. The number of rigs in operation there has doubled over the past year.

Price action in commodities came on the back of statements from Russian Federation and Saudi Arabia suggesting that the current OPEC oil production agreement could be extended into 2018 in order to support prices.

Mr Falih added: "We've come to the conclusion that the agreement needs to be extended".

Oil futures jumped as the ministers spoke.

As OPEC and its allies curb supply, production in the US, which is not part of the agreement, has risen to the highest level since August 2015 as drillers pump more from shale fields.

Brent crude futures were at $52.05 per barrel at 0129 GMT, up 23 cents, or 0.44 percent, from their last close. OPEC, of which the Saudis are the de facto leaders, is likely to follow suit when its 13 members meet in Vienna on May 25.

The nearest crude spreads are also at their least bearish since the end of March, a sign that traders of physical oil barrels, as well as speculators, see improved fundamentals in the market, Varga said.

On November 30, 2016 the Organization of Petroleum Exporting Countries ("OPEC") made a decision to shore up oil prices by announcing an agreement to curb production for the first six months of 2017.

Russia's energy ministry said extending the cuts, which were came into force in November, through to 31 March 2018 would demonstrate "producers' determination to ensure stability, predictability and incremental development of the market". "I don't see reasons for any country to quit".

Even if the production cuts are extended at next week's meeting, the market will continue to be concerned by growing crude production in the US, analysts have said.

Goldman sees long term oil prices at $45-$55 per barrel, but US producers have already said they plan to boost production at those prices. Nigeria's 200,000 barrel-a-day Forcados oil pipeline is ready to export again after being shut down nearly continuously since February 2016. Kazakhstan, however, said it could not join a prolonged cut on the same terms.

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