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Oil prices surge as Rigs decrease, cuts likely to continue

Oil prices collectively increased on Monday following comments made by Saudi oil minister Khalid al-Falih which stated that ongoing supply cuts lead by the Organization of the Petroleum Exporting Countries were unlikely to end before June.

At a meeting held on Sunday, Falih said that the OPEC+ alliance, which includes Russia and other non-member nations, had no intentions of changing its output policy in April but promised that, if required, necessary adjustments would be made in June.

The United Arab Emirates (UAE), a member of OPEC, added that it would continue to fulfill its commitment under the producer agreed to cut supply.

The group is scheduled to meet in Vienna from April 17-18 to discuss developments in the oil market as well as decide whether to extend the production cuts which are set to expire in three months. Another meeting is scheduled for June 25-26 for further discussions on supply policy.

Production cuts by OPEC+ commenced at the beginning of the year in order to avoid a supply glut which would cause a decline in oil prices. Members of the alliance have also since agreed to reduce the level of supply by 1.2 million barrels per day for six months.

Some OPEC sources have forecasted that the agreement is likely to be extended in June. The possibility of an extension, however, is largely dependent on how U.S. sanctions against Iran and Venezuela play out in the coming months.

Meanwhile, the decrease in the number of oil production rigs in the U.S. has also contributed to the fall in oil prices.

In the latest weekly report released by U.S. energy services firm Baker Hughes, the number of active oil rigs for production was shown to have fallen by nine to 834, the lowest level since May 2018.

The latest numbers indicate a likely decrease in the supply of oil production in the coming months. However, analysts have added that notwithstanding the continuing decrease, relatively high production levels in the U.S. may still affect a significant growth in crude output in the months ahead.