Oil prices jump on Saudi and Russian agreement

Markets get caught out as the Energy Ministers Saudi Arabia and Russian Federation announce they will extend the OPEC-led output cuts by nine months to March 2018.

That is longer than the optional six-month extension specified in the deal, and shows that the battle to reduce overall supply has been more hard than originally anticipated, in part because of rising us production.

The worldwide benchmark for crude oil was up $1.25, of 2.5 percent on the day, at $52.10 a barrel.

Brent crude futures were at $52.05 per barrel at 0129 GMT, up 23 cents, or 0.44 percent, from their last close.

Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak met on Monday in China's capital Beijing and jointly said that a joint deal to cut crude supplies in order to prop up the market would be extended from the middle of this year until March 2018. "There are no fast solutions to end this situation, and the only solution possible is to let oil prices work their way" to clear the oversupply, Al-Husseini said from the Saudi city of Dhahran.

The ministers said they hoped other producers would join the supply cut, which would initially be on the same volume terms as before.

Despite data from the Information Energy Administration (IEA) showing that 99% of the targeted cut has been implemented during the first quarter of 2017, oversupply jitters returned as producers who are not part of the deal to curb supply - the United States of America, in particular - ramped up output, which has dampened OPEC's effort to reduce global supply.




Some analysts said that USA production could still threaten to disrupt the market balance unless the cuts were deepened. Libya's crude oil production is at the highest level since October 2014, according to Bloomberg estimates.

The currencies of resource-linked economies got a boost from the jump in oil prices.

USA bank Goldman Sachs said the deal "will likely further extend the oil price rebound. although the rally so far. has remained modest compared to the move that occurred a year ago when the OPEC cuts were first announced".

As OPEC and its allies curb supply, production in the USA, which is not part of the agreement, has risen to the highest level since August 2015 as drillers pump more from shale fields.

Goldman retained its average Brent price forecast for the third quarter of 2017 at US$57 per barrel. "However, we'll see whether the rebound remains until the USA market opens".

EOG Resources (EOG) said it could increase production by 18% while operating within cash flow if oil averages $47 per barrel this year. It estimates that USA crude oil production will rise in the seven shale regions by 122,000 bpd to 5,401,000 bpd in June 2017-compared to the previous month.

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