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Saudi Arabia and Russia signal oil cut

Commodities
Amsterdam - Saudi Arabia and Russia signaled they could extend production cuts into 2018, doubling down on an effort to eliminate a supply surplus just as its impact on prices wanes.

In separate statements just hours apart on Monday, the world’s largest crude producers said publicly for the first time they would consider prolonging their output reductions for longer than the six-month extension widely expected to be agreed at the OPEC meeting on May 25.

"We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing” the Russian Energy Minister Alexander Novak said in a statement.

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Speaking in Kuala Lumpur earlier Monday, his Saudi counterpart Khalid Al-Falih said he was “rather confident the agreement will be extended into the second half of the year and possibly beyond” after talks with other nations participating in the accord.

Read also: What's behind the surprise oil cut? 

Oil advanced after Novak’s comments, with Brent crude gaining 0.6 percent to $49.38 a barrel at 9:49 a.m. in London.Russia and Saudi Arabia, the largest of the 24 nations that agreed to cut production, are reaffirming their commitment to the deal amid growing doubts about its effectiveness.

Surging US production has raised concern the Organization of Petroleum Exporting Countries and partners are failing to reduce an oversupply. Oil has surrendered most of its gains since their deal late last year.

Determined Coalition

“The producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average,” Al-Falih said. While US shale output growth and the shutdown of refineries for maintenance have slowed the impact of cuts by OPEC and its partners, the Saudi minister said he’s confident the global oil market will soon rebalance and return to a “healthy state.”

As OPEC and its allies curbed supply, production in the US, which is not part of the agreement, has risen to the highest level since August 2015 as drillers pump more from shale fields. But American crude inventories are showing some signs of shrinking, falling for the past four weeks from record levels at the end of March.

“Given the extent of the over-hang I think they always knew the market was not going to rebalance in six months which is why our base case was always for a deal lasting at least one year, and if not longer,” said Virendra Chauhan, an analyst at industry consultant Energy Aspects. “Market expectations were lofty, and so OPEC will need to surprise the market with either a deeper cut, or possibly a longer than six-month extension to get prices to move higher.”

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