Saudi Arabia and Russia have said they are in favor of extending cuts to the extraction of oil by world producers until the end of the first quarter of 2018 in order to reduce the oversupply in the market. Crude prices rebounded.
To achieve the objective of reducing inventories to the average of the last five years, it is necessary to extend the cuts to the previously agreed volumes, the ministers said Energy of the world’s largest oil producers at a joint press conference in Beijing. The two countries will present their position at the meeting between OPEC and other nations that are part of the agreement later this month in Vienna.
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Russia and Saudi Arabia, the largest of the 24 countries that agreed to cut production for six months from January, are reaffirming their commitment to the agreement in amid growing doubts about its effectiveness. The increase in production in the United States has raised fears that the Organization of the Petroleum Exporting Countries and its partners are failing to reduce the excess supply. Oil has lost most of its gains since its agreement at the end of last year.
“The deal needs to be extended as we will not reach the desired inventory level by the end of June,” Khalid Al-Falih said during the event with Alexander Novak from Russia. “Therefore, we conclude that it will probably be better to conclude the agreement by the end of the first quarter of 2018.”
Oil futures soared as the ministers spoke. US West Texas Intermediate rose 1.8 percent to $48.70 a barrel on the New York Mercantile Exchange, the biggest gain since May 2. Brent crude rose 1.7 percent to $51.69 on the ICE Futures Europe exchange. Both are still 50 percent below 2014 peaks.
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As OPEC and its allies reduce supply, production in the United States, which is not part of the agreement, has risen to the highest level since August 2015 as drillers extract more shale from fields. However, US shale inventories are showing signs of contraction, and have fallen in the last five weeks from record levels at the end of March.
OPEC members agreed to cut 1.2 million barrels per day in crude oil production in November, and several non-member countries, including Russia, agreed in December to contribute a reduction of 600,000 barrels per day.
“Preliminary consultations show that everyone is committed” to the production deal and no country wants to leave, Novak said. “I see no reason for any country to quit.” The Energy Ministry has held preliminary talks with Russian companies on the matter, it said.
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