Oil price rises as Russia and Saudi Arabia back supply cut

 

Oil prices have risen more than 3% after Saudi Arabia and Russia said a deal to cut production should be extended until March next year.

A barrel of Brent Crude jumped to $52.52 following a meeting in China between the two countries.

The oil cartel Opec, which is dominated by Saudi Arabia, and non-Opec producers led by Russia have been attempting to use the output cut to drive up prices.

However, the US is not included and its high output could undermine efforts.

Both Brent and US crude lost some of their earlier gains on Monday to trade 2.6% higher at $52.17 and $49.23 respectively.

Following the meeting in Beijing, Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said: "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."

Mr Falih added: "We've come to the conclusion that the agreement needs to be extended."

The two countries produce 20 million barrels of crude oil a day - about one-fifth of global consumption - and other oil-producing nations are expected to follow their lead over cuts.

Russian President Vladimir Putin said extending output cuts for a further nine months was the right thing to do: "We support the proposal."

 

Opec, along with the non-member countries such as Russia that are co-operating with the group, face a dilemma.

A central part of their problem is the US shale oil business and the competition to the established industry it has come to represent in the past decade.

After the price of oil started to plunge three years ago, Opec - in particular Saudi Arabia - stood by, hoping the financial pressure on US shale would force it to cut back.

It didn't really work, so Opec and a few other producers cut production hoping to revive prices. In the process they created more space for shale producers.

The cut hasn't really worked. Prices now are about the same level as when they did the deal. Extending it might help if, as Russia and Opec hope, it leads to lower stocks of crude oil. But it is good news for their rivals in the US.

 

Price wobble

An agreement to cut production was reached in September last year, but the deal was due to run out later this year.

Under the agreement, Opec countries were to cut production by 1.2 million barrels a day, while the Russian-led non-Opec nations agreed to reduce output by 600,000 barrels a day.

Earlier this month, oil prices hit a five-month high, but have wobbled over fears that producers may be unwilling to hold their nerve and limit production.

The US has also refused to cut production and its own output has increased by about 10% since last year.

Virendra Chauhan, an analyst at Energy Aspects, said: "Opec and Russia recognise that in order to get the market back on their side they will need 'shock and awe' tactics where they need to go above and beyond a simple extension of the deal. The market will also be looking at export cuts and not just production cuts, which is what is required to rebalance the market."

In recent years Saudi Arabia has been in a pitched battle with the US to try to reduce the price of oil.

It has been concerned with the increase in US shale gas production, and so increased its oil output to drive down prices in a bid to make shale gas exploration economically unattractive.

However, last year Saudi officials agreed to the first cut in production for eight years.

 

 

 

 

Shoot

Trending News

Xiaomi pumps Rs 3,500 crore into India business

BlackBuck's out to raise $150M in new round, valuation likely to jump to $800 M

With $21 Billion, Azim Premji among world’s top philanthropists

Google agreed on a $45M exit package for India-origin exec accused of sex abuse

HSBC pegs Zomato's valuation at $3.6 billion ahead of Swiggy

PayU in talks to acquire online payments firm Wibmo for $60M

Quikr close to acquiring refurbished goods marketplace Zefo in all-stock deal

What life looks like after a layoff from an IT company

General Atlantic & Tencent pump in another Rs 80 Cr in ed-tech unicorn Byju's

US Senator Warren vows to break up Amazon, Facebook, Google

SoftBank extends tech reach with $5B Latin American fund

Coverfox hits the market to raise $50M in new financing round

Cognizant faces US lawsuit alleging discrimination

China's Huawei sues US over federal ban on using its products

Germany's Delivery Hero acquires Zomato's UAE biz, invests in India ops

Ahead of deadline, debate rages on e-commerce policy

Flipkart rejigs reporting of Myntra-Jabong head Amar Nagaram

Grofers raises fresh funds from existing investors, valuation hits $425M

Sachin Bansal invests Rs 250 Cr each in NBFCs Altico & IndoStar: Report

I-bank Wolet files $800k suit over Flipkart’s Upstream buy

Flipkart FY18 revenue up 50%, but losses grow 5x

Pine Labs in talks to acquire Amazon-backed Qwikcilver for $100M

India can become 2nd largest 5G market in 10 years: Huawei

Alibaba rival Pinduoduo seeks to raise $1.5B

Twitter Q4 revenue grows to $909M as video ad sales surge

Mukesh Ambani to invest $1.4B in West Bengal, will help e-commerce expansion

Etail may lose Rs 40,000 crore, retail to get a 3rd of it

Steadview Capital invests $74M in Ola valuing it at around $6B

Byju’s ups revenue to Rs 490 cr in FY 18, losses drop by half

Agritech startups Sabziwala and LivLush merge their business under new entity Kamatan

Avail Finance lands $17.2M from Matrix Partners & Ola, Freecharge and Flipkart founders

RBI suggests tax sops, self-regulation to build fintech space

Swiggy hires new CEO for its Access Service, gets new CFO

Logistics company Delhivery registers 44% increase in FY17 revenues

WeWork to acquire one of the oldest social networks, Meetup

Qualcomm rejects Broadcom's $103 billion offer

EasyRewardz gets $2 million Series-A funding

'Anemic' iPhone 8 demand drags Apple shares lower

Lending platform Lenden Club gets Rs 3.5cr in Equity Investment

On festive sales, Flipkart says 65% clients from Tier-II cities