Oil holds losses as Saudis call time on additional output cuts

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Brent price has almost doubled since major crude producers signed the historic oil accord.

Saudi Arabia, Opec's de facto leader, and Russian Federation have to perform a balancing act as they push up oil prices to meet their budget needs while not driving them much above US$50 a barrel to avoid encouraging a resurgence of rival United States shale production.

Brent crude was up 51 cents, or 1.2 per cent, at $42.81 per barrel, by 0628 GMT, while U.S. West Texas Intermediate (WTI) crude rose 32 cents, or 0.8 per cent, to $39.87 a barrel.

The OPEC+ group, comprising the Organisation of the Petroleum Exporting Countries (OPEC) and allies including Russian Federation, is cutting output by 9.7 million barrels per day (bpd) - about 10% of global output before the coronavirus crisis - in May and June to support prices.

Oil prices are likely to pull back in the coming weeks due to the uncertain path of future demand and a "daunting" inventory overhang, Goldman Sachs said in a note dated Monday.

For the first five months of 2020, imported crude oil volumes in China have risen by 5.1%.

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OPEC+'s extension of its existing global output cuts by one month is a victory for Saudi Arabia and Russian Federation, which were deadlocked in a brutal price war just two months ago.

"When you have Brent approaching $40, it is a good sign", one OPEC delegate said.

OPEC+ will prolong its historic curbs for an extra month and while the group cajoled Iraq, Nigeria and others to fulfill their promises to reduce production, concerns remain about the laggards sticking to their pledge.

"The potential return of Libyan output could also cause considerable challenges for the OPEC leadership, " said Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets. Cutting down excess dependence on worldwide crude oil prices, the country has also filled its strategic reserves to full capacity.

The number of operating USA oil and natural gas rigs fell to a record low for a fifth week in a row in the week to June 5, according to data from Baker Hughes Co. Offshore drillers idled about a third of oil production, amounting to about 636,000 barrels of daily output, due to the storm, according to the Bureau of Safety and Environmental Enforcement. The Covid-19 pandemic and the subsequent collapse in oil prices in April from their recent peaks in January have badly hurt the country's finances.

"These adjustments are in the interest of oil market stability", it added.

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