LONDON • Oil held on to gains yesterday as Saudi Arabia and Russia said they are prepared to extend production cuts into next year to clear the global surplus.
Saudi Arabia's Energy Minister, Mr Khalid Al-Falih, said during an industry event in Kuala Lumpur yesterday that while the rebound in United States shale oil has slowed Opec's efforts, the group will likely maintain output cuts this year and possibly into 2018.
"Based on consultations that I've had with participating members, I am confident the agreement will be extended into the second half of the year and possibly beyond," said Mr Falih. This is the first time the Saudi minister has suggested curbs could be extended beyond this year. Russia's Energy Ministry said it supports the idea.
Oil futures were little changed after increasing 1.5 per cent last Friday, following a decline to the weakest since November. Oil capped a third weekly loss last week after dropping to levels last seen before the Organisation of Petroleum Exporting Countries agreed in November to reduce production.
West Texas Intermediate for June delivery rose 21 US cents to US$46.43 a barrel before Mr Falih's comments, and traded little changed at US$46.20 at 10.16am in London yesterday. Brent for July settlement was 6 US cents lower at US$49.04 a barrel after climbing as much as 1.7 per cent earlier. Prices slid 5.1 per cent last week.
Opec will meet on May 25 to decide whether to extend supply cuts through the second half of the year as concerns mount that its efforts to trim a global glut are being overwhelmed by rising US supply.
US oil production has gained more than 10 per cent since mid-2016 to 9.3 million barrels per day, close to levels of top producers Russia and Saudi Arabia.
Despite this, Mr Falih said that markets had improved from last year's lows, when crude prices fell below US$30 per barrel.
"I believe the worst is now behind us, with multiple leading indicators showing that supply-demand balances are in deficit and the market is moving towards rebalancing," he said.
"We should expect healthier markets going forward."
Said Mr Ole Sloth Hansen, head of commodity strategy at Saxo Bank in Copenhagen: "Saudi and Russia's main objective is once again to buy some time in the strong belief that hard data is about to turn more favourable as the high-demand season approaches.
"It's the old tried-and-tested verbal intervention. They're serious, but they hope it isn't necessary."