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Russia and Saudi Arabia promise deal extension but US inventories remain high

Oil prices received a boost as Russia and Saudi Arabia gave the strongest indication yet that the OPEC-led production cuts will be extended.

Speaking in Beijing, energy ministers Alexander Novak and Khalid al-Falih announced a joint deal to continue the current cuts until the end of March next year.

With Russia and Saudi Arabia being the world’s biggest oil producers, the market certainly warmed to the news, with oil prices rising to $52 from $49 last week. These giants are expected to bring the other OPEC partners on board on the current terms, although they also hope other producers will join the effort. Some analysts remain cautious, however, indicating that a failure to reach a binding agreement at the OPEC meeting tomorrow (May 25) will likely see a rapid reversal of the gains.

Despite the production cuts, the American Petroleum Institute (API) reported an 883,000 barrel build in US crude inventories for the week ending May 12, ending the recent long run of draws and defying expectations of a 2.4 million barrel draw.

The news was a reminder that global stockpiles remain stubbornly high – something that is ascribed to the 10% rise in US production since mid-2016. This is evidenced by how Darren Woods, the new CEO of ExxonMobil (which makes high-temperature greases like Mobiltemp SHC 100), is diverting more of the company’s drilling budget from long-term projects to shale fields that can generate a return in as little as three years, and can be turned on or off in response to oil prices.

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