Oil rises above $52 as Saudi Arabia, Russia back longer supply cut

An oil rig near the town of Usinsk, 1,500 km northeast of Moscow, Russia, is shown this file photo. Russia and Saudi Arabia said Monday they want to extend oil production cuts through the first quarter of 2018e. (AP Photo/Dmitry Lovetsky, File)

LONDON: Oil hit a three-week high on Monday above $52 a barrel after top exporter Saudi Arabia and Russia said supply cuts needed to last into 2018, a step toward extending an OPEC-led deal to support prices for longer than originally agreed.
Energy ministers from the two countries said on Monday that supply cuts should be prolonged for nine months, until March 2018. That is longer than the optional six-month extension specified in the deal.
Brent crude, the global benchmark, had risen $1.50 to $52.34 a barrel by 1152 GMT and traded intraday at $52.52, the highest since April 24. US crude was up $1.43 at $49.27 a barrel.
Oil traders were surprised by the strong wording of the announcement, although it remained to be seen whether all countries participating in the deal would agree with the Saudi-Russian stance. Some analysts doubted producers would stick to a prolonged curb.
“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 Carsten Fritsch, analyst at Commerzbank.
“That said, we are skeptical about Russia’s willingness to actively participate in any extended cuts.”
The Organization of the Petroleum Exporting Countries, Russia and other producers originally agreed to cut output by 1.8 million barrels per day in the first half of 2017, with a possible six-month extension.
Oil has gained support from the supply deal but inventories remain high and output from other producers such as the United States is rising, keeping prices below the $60 that Saudi Arabia would like to see.
The ministers said they hoped other producers would join the supply cut, which would initially be on the same volume terms as before. Kazakhstan, however, said it could not join a prolonged cut on the same terms.
“When the two biggest oil producers of the world reach a consensus on the extension of a supply cut the market will listen,” said Tamas Varga of oil broker PVM in a report, of the rise in prices on Monday.
“Rhetoric is doing its job but this must be backed by action in less than two weeks’ time.”
Ministers from OPEC and the non-OPEC countries meet to decide policy on May 25 in Vienna, and OPEC has also invited two small producers not involved in the original deal, Egypt and Turkmenistan, to attend.