Oil price rises as Russia, Saudi Arabia back supply cut

December 22nd, 2017

Oil prices have risen more than 3 percent 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.
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.”
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.
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.

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