Oil prices jumped 2 percent on Monday after the energy ministers of the world’s two biggest producers Saudi Arabia and Russia jointly said that a crude production cut would be extended from the middle of this year until March 2018, Reuters reports.
Brent crude was at $51.88 per barrel at 0655 GMT, up $1.04, or 2.1 percent, from its last close at a level last seen in early May. U.S. West Texas Intermediate (WTI) crude was at $48.85 per barrel, up $1.01, or 2.1 percent.
Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said on Monday in Beijing that a joint deal to cut crude supplies would be extended from the middle of this year until the end of March 2018.
“We’ve come to conclusion that the agreement needs to be extended,” the statement said.
“The two ministers agreed to do whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial oil inventories to their 5-year average level,” it added.
The Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia is the de-facto leader, and other producers led by Russia, pledged late last year to cut output by 1.8 million barrels per day (bpd) during the first half of 2017. OPEC-members agreed to cut 1.2 million bpd under the deal.
The extension will initially be on the same volume terms as before, although the ministers said they hoped other producers would join the efforts.
Russia and Saudi Arabia together produce about 20 million bpd of crude, equivalent to one-fifth of global consumption. Their clout in oil policy is seen ensuring that other producers who have so far participated in the cuts will also extend.
“Saudi and Russia are clearly working closely together. Saudi seems very determined to push oil prices higher by making this joint statement now,” said Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore.
OPEC is due to meet in Vienna, Austria, on May 25.
However, higher output from the United States, which did not participate in the agreement to cut supplies, has undermined the efforts by OPEC and Russia.
Thanks to a relentless rise in drilling activity, mostly from shale producers, U.S. oil output has shot up by more than 10 percent since mid-2016 to over 9.3 million bpd.
“With the U.S. rig count increasing for its 17th consecutive week, I think we can safely say that the crude oil battle is well and truly on,” said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai.
Financial traders have increased their stakes in the Brent and WTI markets as speculators are taking positions that either OPEC and Russia’s effort to support prices will work out, or prices will drop again because of the surge in U.S. supply.
Open interest for Brent and WTI crude futures hit all-time records this month of over 2.5 million contracts open for front-month Brent, and over 2.3 million contracts open in front-month WTI.