Oil prices have risen by over 2% as Russia and Saudi Arabia announce they have signed a deal to prolong the cuts to production until March 2018.
Following the meeting in China between the two producers, the price of crude shot up. North Sea Brent crude gained US$1.25, or 2.46%, to reach US$52.06/bbl, while the US West Texas Intermediate (WTI) moved up by US$1.21, or 2.53%, to US$49.05.
Shortly after the meeting, Saudi Energy Minister Khalid al-Falih and Alexander Novak stated, "The two ministers agreed to do whatever it takes to achieve the desired goal of stabilising the market and reducing commercial oil inventories to their five year average level”. With Falih adding, "We've come to the conclusion that the agreement needs to be extended."
Russian President Vladimir Putin also released a short statement in agreement, “We support the proposal”.
Kazakhstan, who joined the OPEC and non-OPEC pact in November 2016, has also come out in support of the extensions, despite its hope that output from the Kashagan field will increase in 370 000 bpd later this year.
Kazakhstan’s Energy Minister Kanat Bozumbayev said, “We must support efforts to limit output, because the balance on the market has not been restored yet…we will not be able to join this (extended cut) agreement automatically on the same terms, but we will discuss to what degree we can participate in it”.
Yet in the face of all this optimism, one country appearing not to ‘play ball’ is the US, who despite the global over-supply and market downturn have continued to produce shale gas. Under the agreement, OPEC countries were to cut production by 1.2 million bpd, while non-OPEC countries were to reduce their output by 600 000 bpd. However, the US refused to cut production and have since gone on to increase output by approximately 10%.
Though the oil price hit a five-month high recently, it has wavered in light of distrust that producers will be able to maintain their reduced output levels. There is hope everyone will be able to reach an agreement soon, and prices will stabilise, as OPEC meets in Vienna on 25 May to discuss the cuts further.
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