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Oil prices build on gains on expectation of extended crude supply cut

Published 16/05/2017, 11:30 am
© Reuters.  Oil prices build on gains on expectation of extended crude supply cut
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* Saudi, Russia said Monday cuts need to be extended to March 2018

* Analysts warn that rising supplies elsewhere undermine cuts

* U.S. output has soared 10 pct since mid-2016 to 9.3 million bpd

* Production in Libya, Nigeria is also recovering from disruptions

By Henning Gloystein

SINGAPORE, May 16 (Reuters) - Oil prices rose on Tuesday, extending gains after a joint announcement by top producers Saudi Arabia and Russia to push for an extension of supply cuts until the end of March 2018.

Brent crude futures LCOc1 were at $52.05 per barrel at 0129 GMT, up 23 cents, or 0.44 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $49.10, up 25 cents, or 0.51 percent from their last settlement.

In order to rein in a glut, Saudi Arabia and Russia said on Monday that they agreed the need for a 1.8 million barrels per day (bpd) crude supply cut to be extended for nine months, until the end of March 2018. there is no final deal yet despite the pledge by Saudi Arabia - the world's top exporter and de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC) - and top producer Russia, as the 12 remaining OPEC members and other producers participating in the cuts have to agree to the extension during a meeting on May 25.

"The pressure is now on officials to deliver on these pledges," said James Woods, global investment analyst at Australia's Rivkin Securities.

Woods also said that oil supplies would likely remain plentiful despite an extended cut.

"As we have seen over the past six months, rising U.S. production and record inventories have kept upside limited and a nine month extension at this stage is unlikely to break that," he said.

U.S. bank Goldman Sachs (NYSE:GS) 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 last year when the OPEC cuts were first announced."

Prices are up by 2.3 percent since the announcement of the planned extension on Monday, compared with an over 15 percent jump in the two days following the announcement of the initial cut on November 30, 2016.

Goldman said that beyond the ongoing rise in U.S. oil production, which is up over 10 percent since mid-2016 to 9.3 million bpd C-OUT-T-EIA , there was also an increase in output from within OPEC by members who were exempt from the cuts, or where forceful disruptions had ended, including Libya and Nigeria. bank said that "these combined volumes could largely offset the benefit of the extended cuts."

Goldman retained its average Brent price forecast for the third quarter of 2017 steady at $57 per barrel.

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