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Saudi, Russia agree to extend oil production cuts to March 2018

19 May 2017

Saudi Arabia and non-OPEC Russia have said they want an extension to output reductions of nearly 1.8 million barrels per day (bpd) that were initially agreed to run in the first half of 2017.

However Gene McGillian, VP of Market Research at Tradition Energy, says with increased production in Libya and Nigeria, as well as the United States, sticking to current cuts might not be enough.

On Wednesday, the rise in both benchmarks was seen after the news of drop down came in USA crude inventories and a dip in US output. The largest OPEC member Saudi Arabia and non-OPEC member Russian Federation have agreed to keep production at present levels, which has found support from some other countries who are participating in the cut.

West Texas Intermediate for June delivery rose as much as 37 cents to $49.03 a barrel on the New York Mercantile Exchange, and was at $48.87 at 1:27 London.

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Wednesday, oil prices were boosted by the EIA reporting a fresh draw in crude oil inventories for the week to May 12, at 1.8 million barrels.

"Opec ministers likely will continue to talk oil higher, there is more chatter on the discussion and that means there will be more volatility in prices", said Giovanni Staunovo, an analyst at UBS in Zurich.

OPEC is scheduled to meet on 25 May to decide the production policy and extension of the deal by nine months.

But market watchers are growing more confident that OPEC, Russia and other big producers will extend cuts of nearly 1.8 million barrels per day (bpd) until the end of March 2018.

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Distillate stockpiles, which include diesel and heating oil, fell 1.9 MMbbl, vs. expectations for a 1.1 MMbbl drop, the EIA data showed.

"All options are open", one source said. The contract earlier rose to the highest since April 21 and is on track for a almost 4 percent climb this week, its second week of gains. U.S. light crude rose 71c to $49,37 a barrel. At the same time, compliance with OPEC's agreed 1.2-million bpd cut remained robust at around 96 percent.

Shipping data in Thomson Reuters Eikon shows that USA crude exports to Asia have soared from a handful of tankers a quarter throughout 2015 and 2016 to 10 tankers in the first quarter of 2017 and that figure is expected to rise.

"I feel optimism because our main partner in this process, and our main partner without doubt is Saudi Arabia, has fully implemented all the agreements that took place up to now, and secondly, Saudi Arabia wants to maintain stable and fair prices for oil", Putin said. That's countering optimism after government data showed USA stockpiles dropped last week for a sixth straight weekly decline and crude production fell for the first time in 13 weeks, ending the longest stretch of gains since 2012.

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