Oil rises above $52 a barrel as Saudi, Russia agree to extend output cuts

Crude prices hit a three-week high above $52 a barrel today, after top producers Saudi Arabia and Russia agreed to extend output cuts for a further nine months, until March 2018, opening the possibility of extending an OPEC-led deal to support prices further than expected.

The timing and wording of the statement sent crude prices up more than 1.5 per cent in Asian trading.

European benchmark North Sea Brent crude rose $1.54 to $52.38 a barrel by 1005 GMT (6.05 a.m. ET) and traded intraday at $52.52, the highest since April 24. US light sweet crude WTI was up $1.48 at $49.32 a barrel.

While traders and analysts doubt producers sticking to a prolonged cutback, the strong wording of the announcement had an impact on the market.

Meeting on the sidelines of China's One Belt One Road conference in Beijing, energy ministers from the two countries said supply cuts should be prolonged for a further nine months, ie, until March 2018, from June 2017 as originally scheduled, to rein in a global glut that is preventing prices from firming up.

OPEC is slated to meet on 25 May and the Saudi-Russia joint statement is expected to ensure cooperation from other producer exporters.

In their joint statement, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak pledged "to do whatever it takes" to reduce global inventories to their five-year average and expressed optimism they will secure support from producers beyond those in the current deal.

"There has been a marked reduction to the inventories, but we're not where we want to be in reaching the five-year average," Falih told a briefing in Beijing alongside Novak.

"We've come to conclusion that the agreement needs to be extended."

Saudi Arabia, top Opec exporter, and Russia, the world's biggest producer, together control a fifth of global supplies.

The current agreement that started on 1 January effectively cut oil production by Opec and non-Opec countries by almost 1.8 million barrels per day (bpd), but that has not helped crude futures move above the $50 per barrel levels.

Russia's top producer Rosneft, which helped prepare the original deal, said it is ready to comply with the extension, according to Russian media.

Dubai-based commodity research firm Emirates NBD said if producers maintain their cuts at the current pace, it could push the market into a small deficit by the fourth quarter.

But, this would depend on how much low-cost US shale producers would raise production.

Since US is not a party to the agreement to cut supplies, US shale producers are free to hike production as prices rise, which in turn could undermine the unified effort to prop up the market.