Oil prices rise as Saudi and Russia agree to prolong output curbs

Korean People's Army personnel wave after a military parade in Pyongyang marking the 105th anniversary of the birth of late North Korean leader Kim Il-Sung

Oil prices extended sharp overnight gains in North American trading on Monday, after Saudi Arabia and Russian Federation agreed to extend oil output cuts for a further nine months until March 2018 in a bid to erode a global crude glut.

Russia and Saudi Arabia support extending the OPEC deal for another nine months, Saudi Arabia Energy Ministry Khalid Al-Falih said in Beijing alongside Russian counterpart Alexander Novak.

OPEC and Russia Extending the cut was broadly anticipated, yet the timing and wording of the statement sent crude prices up more than 1.5 percent in Asian trading.

Brent crude was at $51.66 a barrel at 4.10am GMT, up 82c, or 1.6%, from its last close.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June CLM7, +2.07% rallied 91 cents, or 1.9%, to $48.75, trading at its highest level since May 1.

"Each side is now adhering to the agreement, and I think that unless the goals are reached there is a big sense to continue this collaboration".

The Ministers agreed to hold consultations with "the countries-participants in the agreements and other producers before May 24" for the goal of reaching a full consensus on the nine-month extension of the declaration on cooperation, TASS reported.

"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", said Commerxbank analyst Carsten Fritsch.

In December 2016, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices.

Even so, McGillian said, "We still have a near record overhang and signs of increasing production in areas of the world outside the producers that agreed to the cuts".

"That is going to be easier said than done, it appears, with USA production running at its fastest pace since August 2015 and data yesterday confirming that Chinese growth momentum continues to moderate", ANZ strategists wrote in a daily note.

"In our view, it also suggests that they believe the global crude market ultimately easily accommodates United States shale oil production and that further USA production growth may be needed as major conventional sources of supply suffer from the extraordinary reductions in capital spending in 2014-2017".

"The threat of compliance by the members who are agreeing to this production cut still remains a viable risk for oil prices", he added. Both remain more than 50 per cent below their 2014 peak.

Saudi Arabia is the largest contributor among members of the Organization of Petroleum Exporting Countries to an agreement to balance an oversupplied market with managed production declines. The two countries plan to present their position to the other producing nations at the May 25 OPEC meeting in Vienna.

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