Oil Prices Are Soaring After Saudi Arabia and Russia Reach a Deal

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Oil prices were heading on Friday for a second week of gains, trading above $53 a barrel, on growing expectations that producers will agree further steps to support the market when they meet next week.

On Thursday, oil erased early losses and rebounded after Algeria's Energy Minister Noureddine Boutarfa said that most OPEC producers are supporting the Saudi-Russian proposal for an extension of the production cuts until March 2018.

On 25 May, leaders from Opec and other producing countries will meet in Vienna to decide on output policy.

At 6:05pm BST, the Brent front month futures contract was up 0.80% or 42 cents to $52.63 per barrel, holding firm above the psychological $50 level. If the cuts are extended under the current arrangement, as suggested by Saudi Arabia's al-Falih at a press briefing in Beijing, Libya and Nigeria could effectively sabotage the efforts of the remaining 11 OPEC peers, in addition to endangering cohesion and compliance within the OPEC and non-OPEC blocs. The contract is also heading for a weekly increase of nearly 4 percent.

Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce output by 558,000 barrels per day starting from January 1, 2017 for six months, extendable for another six months.

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After settling Thursday at three-week highs, light, sweet crude futures for delivery in June on the New York Mercantile Exchange were recently up 0.8% at $49.73 a barrel in the Globex electronic session.

The IEA's May report cited strong growth in the shale sector as the reason to revise up its expectations of USA crude output.

Among the scenarios being considered by the OPEC panel were a six- or nine-month extension with a possible deeper cut, sources said.

The stalled drawdowns shed light on the broader challenge facing OPEC - the Organization of the Petroleum Exporting Countries - as it struggles to steer the industry out of the downturn caused by oversupply.

"We still expect prices to move to $60 over the coming months because the oil market will be in a deficit as supply growth will lag demand growth". United States producers are not party to any agreements capping production. "On the other, there are those who are focused on the real drawdowns that have started to occur in US oil stocks over the past month or so". Overall production from non-OPEC members, including about a dozen that are party to the multilateral production arrangement, is expected to grow by 600,000 barrels per day this year.

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