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Oil producers' talk of longer cuts spurs optimism

19 May 2017

Saudi oil minister Khalid al-Falih said Monday the deal extension would have the same volume allocations that were included in the December agreement.

Oil rode its longest rising streak in more than a month as a proposal by the world's two biggest crude producers to extend output curbs into 2018 boosted confidence that other nations will follow suit.

Opec, 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.

World oil prices jumped on Monday, with US crude futures trading 3% firmer at more than $49 a barrel.

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On Monday, Russian and Saudi energy ministers said in a joint statement that Moscow and Riyadh meant to propose a 9-month extension of the current Vienna agreement on oil output cuts on the existing conditions at the OPEC ministerial meeting in late May.

Oil held gains near $49 a barrel after Saudi Arabia and Russian Federation stoked expectations production cuts might be extended for nine months.

Brent futures were up 4 cents, or 0.1 percent, at $51.86 a barrel by 11:32 a.m. EDT.

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.

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An agreement to cut production was reached in September last year, but the deal was due to run out later this year.

Goldman's Jeff Currie says talk that OPEC could start defending its market share again to squeeze US producers is the wrong way to look at the situation: "Shale and OPEC are taking on the worldwide oil [producers] that are sitting at the top [of the cost curve]".

Oil prices rose on the announcement that the countries want to extend the deal, which encompasses both nations in the Organization of the Petroleum Exporting Countries and some non-OPEC countries like Russian Federation.

Oil prices hit a three-week high after the announcement, while shares of oil majors Exxon and Chevron were up 1 percent in premarket trading.

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Crude sank to a five-month low earlier this month, rattled by concern over increasing US crude output that has shaken investors' faith in the ability of OPEC to rebalance the market. The original goal of the OPEC-led cuts was to raise prices to around $60, but the reality is that $55 Brent may be the best that the cartel and its customers can do.