Russia, Saudi Arabia back extension of oil output cuts
16 May 2017, 07:02 | Myrtle Hill
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US crude rose 2.72 percent to $49.14 per barrel and Brent was last at $52.09, up 2.46 percent on the day.
Asian markets were mixed in Tuesday trade, following the bounce in oil prices after the energy ministers of Russian Federation and Saudi Arabia announced output cuts should be extended till March 2018 and as investors largely shrugged off USA political news on President Donald Trump.
LONDON, May 15 Hedge funds had become increasingly bearish towards crude oil by the middle of last week, leaving them vulnerable to a short squeeze with OPEC's next meeting coming up on May 25.
Energy ministers from the two countries said on Monday that they had come to the conclusion that the supply cuts agreement needs to be extended.
"But now with rising demand and a commitment by Russian Federation and Saudi Arabia to extend cuts, we could see the recent 5 week drop in USA oil inventories continue for the foreseeable future", he wrote in his daily Energy Report newsletter.
The currencies of resource-linked economies got a boost from the jump in oil prices.
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By May 9, hedge funds were running a net short position of 21 million barrels in US gasoline and 9 million barrels in heating oil. That is longer than the optional six-month extension specified in the deal.Global benchmark Brent crude was up $1.41 at $52.25 a barrel by 11:28 Eastern (1528 GMT), having touched $52.63, the highest since April 21.
Under the current agreement that started on January 1, the 13-country OPEC and other producers pledged to cut output by nearly 1.8 million barrels per day in the first half of the year. Both are still more than 50 percent below their peaks in 2014. But American crude inventories are showing some signs of shrinking, falling for the past five weeks from record levels at the end of March.
The extension of the cut into the first quarter of next year will initially be on the same volume terms as before, although the ministers said they hoped other producers would join the efforts. "I don't see reasons for any country to quit". While the curbs by the producers is working, "we are not where we want to be" on the initial goal of bringing global inventories down "gently" below the 5-year average, Al-Falih said.
Even if the production cuts are extended at next week's meeting, the market will continue to be concerned by growing crude production in the USA, analysts have said.
While OPEC ministers will meet May 25 to decide whether to go forward with an extension of their cuts that started January 1, concerns remain about the pace of production growth.
U.S. Treasury yields dropped to 2.292 percent, building on Friday's loss when they ended at 2.333 percent, down from Thursday's close of 2.4 percent and their biggest one-day drop in more than three weeks. Nigeria's 200,000 barrel-a-day Forcados oil pipeline is ready to export again after being shut down nearly continuously since February 2016. Kazakhstan, however, said it could not join a prolonged reduction on the same terms.
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