Oil price surges after Russian Federation adds to cuts extension call

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The market reaction reflected how far the commitment went beyond market expectations: the consensus view over the weekend was that the output deal would be extended through the end of the year, while some market participants were also concerned that Saudi Arabia and Russian Federation, the two biggest exporters, would abandon restraint completely rather than lose any more global market share to American producers.

Saudi Arabia and Russian Federation, the world's two top oil producers, agreed on Monday to extend oil output cuts for a further nine months until March 2018 in a bid to erode a global crude glut, pushing up prices.

Despite their doubts over its effectiveness, the two major oil suppliers have agreed to reduce their output for six months.

"That said, we are skeptical about Russia's willingness to actively participate in any extended cuts". Shares in Tullow Oil climbed by over 3.3pc to 201.63p while Cairn Energy rose 2.75pc to 201.63p.

On the New York Mercantile Exchange, June West Texas Intermediate crude rallied $1.01, or 2.1%, to settle at $48.85 a barrel, the highest settlement since April 28, according to FactSet data. Both remain more than 50 percent below their 2014 peak.

A jump in USA exports to Asia, the world's biggest and fastest growing market and the last region in which OPEC supplies dominate, is a particular worry for the producer club. Get our markets daily newsletter.

Dubai-based commodity research firm Emirates NBD said if producers maintain their cuts at the current pace, it could push the market into a small deficit by the fourth quarter.

"That is the most important condition for stability", he said at a separate press conference in Beijing.

Oil has gained support from the deal but inventories remain high and rising output from other producers, including the United States, is keeping prices below the $60 that top exporter Saudi Arabia would like.

American oil-drilling activity has risen for 17 straight weeks, according to Baker Hughes' rig-count data, and the USA government last week boosted its domestic-production estimates for this year and next. But American crude inventories are finally showing some signs of shrinking, falling for the past five weeks from record levels at the end of March.

Shawn Reynolds, manager of the Natural Resources Equity strategy at VanEck, said: "We see this as an unprecedented degree of cooperation between the two largest producers in the world providing a degree of commitment and visibility unmatched in the OPEC-era".

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