Crude Oil price rallied up after Saudi Arabia and Russia the world’s top oil producers stoked expectations that production cuts might be extended for additional nine months until March 2018 to rein in global crude oil glut.
Saudi Energy Minister Khalid Al-Falih said Monday in Beijing alongside his Russian counterpart, Alexander Novak. The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, they said.
Analyst are of the view that when Saudi Arabia and Russia come out together it sends a very strong signal to the market averring that the next step will be get the Organisation of the Petroleum Exporting Countries (OPEC) behind the extension of the accord, however, chances are very high that they will get all of OPEC behind it.
This development is coming on the heels OPEC meeting in Vienna, scheduled for May 25 to consider whether to extend output cuts agreed in December last year between OPEC and 11 non-member countries, including Russia.
Benchmark Brent oil prices rose trading up $1.39 at $52.23 per barrel by 1407 GMT as the market had previously expected the cuts to be extended by as little as six months.
With a nine-month extension now the minimum expectation for the OPEC meeting, the group has a lot of work to do to persuade its members and some non-OPEC producers to back the move.
OPEC wants to reduce global oil inventories to their five-year average but so far has struggled to do so. Stockpiles are hovering near record highs, partly because of rising production of Shale Oil/Gas in the United States, which is not part of the existing deal.
The antagonists are skeptical that all OPEC members would not be on board. OPEC member Iraq, whose production is growing fast, has said it would support renewing the deal only for six months.
Nigeria is showing signs of recovery in production after cuts arising from militant activities in the Niger Delta region. An increase also in Libyan output and a surge in U.S. production may undercut OPEC’s strategy to re-balance the market and boost prices.
