Oil rises 2% after Saudi and Russian Federation back longer supply cut

Oil prices snapped a four-day winning streak to settle lower Tuesday as traders were looking for excuses to lock in gains after recent sharp rally.

World oil prices jumped on Monday, with US crude futures trading 3% firmer at more than $49 a barrel.

Official data from the Energy Information Administration will be released Wednesday, amid forecasts for an oil-stock drop of around 2.2 million barrels.

World oil prices leapt after the Saudi-Russian announcement and made further gains on Tuesday in Asian trade, with benchmark West Texas Intermediate up 19 cents at Dollars 49.04 per barrel.

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. It's targeting production of 1.32 million barrels a day by the end of this year, the NOC said last week in a statement.

Saudi oil minister Khalid al-Falih said Monday the deal extension would have the same volume allocations that were included in the December agreement.

There's a "good chance" that Russian Federation, a non-OPEC nation, will extend its cooperation with the organization because Saudi Arabia wants price stability and is complying with its obligations in the deal, he said.

Kuwait, a Gulf producer usually aligned with the Saudi Opec view, said on Tuesday it supported the proposal. Kazakhstan, however, said it could not join a prolonged cut on the same terms.

Brent futures fell 2 cents to $51.80 a barrel as of 1:54 p.m. EDT (1754 GMT). The decision for extending the oil production cut was mutually agreed upon by the two major oil producing countries and all the active members of the OPEC.

US production is now forecast to average about 9.31 million bpd this year - a level reached already, according to government figures. Some analysts said that USA production could still threaten to disrupt the market balance unless the cuts were deepened. The global benchmark touched its strongest level since April 21 at $52.63 in the prior session.

He said the longer extension was needed to balance supply and demand on the global oil market.

"It remains to be seen whether all countries participating in the deal will agree with the Saudi-Russian stance", said Sukrit Vijayakar, director of energy consultancy Trifecta.

Under the current agreement that started on January 1, the 13-country OPEC and other producers pledged to cut output by nearly 1.8 million barrels per day in the first half of the year.

  • Leroy Wright