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Oil rises 2% after Saudi Arabia and Russia back longer supply cut

16 May 2017
Oil rises 2% after Saudi Arabia and Russia back longer supply cut

Goldman's Jeff Currie says talk that OPEC could start defending its market share again to squeeze US producers is the wrong way to look at the situation: "Shale and OPEC are taking on the global oil [producers] that are sitting at the top [of the cost curve]".

Energy ministers from the world's top two oil producers said production cuts, which were set to expire next month, should continue until March, longer than an optional six-month extension specified in the deal.

"Rhetoric is doing its job but this must be backed by action in less than two weeks' time".

Ministers from Opec and non-Opec countries meet to decide policy on May 25 in Vienna. Benchmark Brent oil prices rose, trading up $1.39 at $52.23 per barrel by 1407 GMT as the market had previously expected the cuts to be extended by as little as six months.

The news from the energy sector more than offset concern over the weekend after a successful missile test by North Korea and a cyber attack that affected computers in more than 150 countries. Investors seemed to mostly shrug off fears from a successful missile test by North Korea and a cyberattack that disrupted operations at vehicle factories, hospitals, shops and schools. According to the U.S. Energy Information Administration ("EIA"), crude oil imports into the U.S. increased by 53,000 barrels per day from the eight weeks before OPEC announced their agreement to the eight weeks after the announcement.

Futures prices for oil, iron ore, aluminum and copper were all higher by the close in London. The S&P 500 finished the session 0.48 percent higher while gains in tech and cybersecurity stocks caused the Nasdaq to rise 0.46 percent.

The pan-European FTSEurofirst 300 index rose 0.10 percent and MSCI (Frankfurt: 3HM.F - news) 's gauge of stocks across the globe gained 0.49 percent.

MSCI's emerging markets benchmark also advanced 0.3 percent to a two-year high. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.7 percent higher, while Japan's Nikkei lost 0.07 percent.

Oil futures jumped as the ministers spoke. The pair has made session high at 1.0988 and hit lows at 1.0963 levels.

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. The Canadian dollar was trading at C$1.3635 to the greenback up 0.6 percent. Retail sales volumes rose a seasonally adjusted 1.5 percent in the three months to end-March, data from Statistics New Zealand showed, handily topping analysts' expectations of a 0.9 percent rise. The U.S. natural gas market is much tighter than it was a year ago and demand will exceed supply by the 4th quarter. Early in May, a break below that marker sparked a sell-off with prices at their lowest since the last OPEC meeting at the end of November.

Gold prices rallied 0.2 percent to $1,231.24 an ounce, extending Friday's 0.3 percent gain. US West Texas Intermediate crude was US$48.85 per barrel, up 2.1 per cent.