Oil prices rise on expectation of output cut extension

The comments from Al-Falih and rising prices came after steep falls last week due to ample supply in countries that aren't participating in the cuts, including the United States where output is soaring.

Saudi Arabia and Russian Federation signaled they could extend production cuts into 2018, doubling down on an effort to eliminate a supply surplus just as its impact on prices wanes.

"I do believe that the worst is clearly behind us with multiple leading indicators showing that supply and demand balances are clearly in deficit and the market is moving towards rebalancing".

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Falih told reporters in January an extension would probably not be needed ("Saudi energy minister: unlikely to extend producers' agreement", Reuters, Jan. 16).

Since a low point in May 2016, US producers have added 387 oil rigs, or about 123 per cent, Goldman Sachs said. The selling pressure was ignited by concerns that global oil stocks weren't falling as quickly as was hoped.

Both futures contracts have dropped by more than 10 per cent in the last month despite moves by the Organization of the Petroleum Exporting Countries and other exporters including Russian Federation to restrict supply to try to drain a global glut. Funds also cut their net long position.

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Most oil traders had already concluded that OPEC had no option but to extend the production cuts so the clearer language from Falih and other ministers is unlikely to shift expectations. 'This should prevent USA oil production from accelerating at the same rate in the second half of the year'.

In December 2016, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices.

"The producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average". On May 25, ministers from the Organization of Petroleum Exporting Countries will convene in Vienna, Austria to discuss the possibilities of prolonging the supply cuts. "OPEC members have no choice but to talk up prices by signalling an extension to the production cuts agreement".

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