Oil prices search for new ceiling on production agreement

May 15 (UPI) -- Crude oil prices were on pace for another major rally Monday after Saudi Arabia and Russia agreed on an extension to a production cut arrangement.

Saudi Arabia is the largest contributor among members of the Organization of Petroleum Exporting Countries to an agreement to balance an oversupplied market with managed production declines. Russia is the largest contributor among non-OPEC members.

The implementation of the deal in January sustained crude oil prices above $50 for most of the year, though April saw downward pressure emerge from a surging North America. Some of the oversupply indicators waned last week, however, and crude oil prices are up more than 10 percent from May 8.

After agreeing to an extension to March, three months longer than anticipated, Russian President Vladimir Putin said the conditions were ripe for further strength in the energy sector.

"I think that the outlook is promising," he said during a press conference Monday.

The price for Brent crude oil was up 3.25 percent about a half hour before the start of trading in New York to $52.52 per barrel. West Texas Intermediate, the U.S. benchmark for the price of oil, was up 3.5 percent to $49.57 per barrel.

The price for Brent crude oil is up more than $5.50 per barrel from last week.

The rally follows a weekend commitment from China to invest trillions of dollars in a new Silk Road initiative aimed at connecting Asian economies together with modernized port, rail and road networks.

Speaking of the financial burden during the weekend, Chinese President Xi Jinping said regional economic strength would come through stronger links.

"Finance is the lifeblood of modern economy," he said. "Only when the blood circulates smoothly can one grow."

The spending effort follows a recent report from the U.N. Economic and Social Commission for Asia and the Pacific that found Chinese economic growth was on a slow track downward. Representing about 42 percent of the gross domestic product from the developing economies in the Asia-Pacific, the U.N. body said Chinese demand was subdued as growth moderated from 6.9 percent in 2015 to 6.7 percent last year. Issued at the start of May, the report in part led to a downturn for crude oil prices.

Phil Flynn, a senior market analyst for the PRICE Futures Group in Chicago, said in a daily newsletter the extension to the production arrangement, the potential for major economic fallout in restive Venezuela and tensions building ahead of Iranian presidential elections create a bullish situation for crude oil. By his estimate, the price of oil could hit $70 per barrel by the end of the year.

A report out Monday morning from Wood Mackenzie said a market that's seen $10 per barrel swings in either direction so far this year, however, is making investors nervous. About 80 percent of those taking part in a Wood Mackenzie survey said crude oil prices will range between $50 per barrel and $60 per barrel for this year.