Oil prices jumped on Monday after the energy ministers of top producers Saudi Arabia and Russia jointly said that an OPEC-led crude production cut would be extended from the middle of this year until March 2018. Brent crude was at $51.66 per barrel at 0410 GMT, up 82 cents, or 1.6 percent, from its last close. U.S. West Texas Intermediate (WTI) crude was at $48.67 per barrel, up 82 cents, or 1.7 percent.
Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander said on Monday in Beijing that a joint deal to cut crude supplies to prop up prices would be extended from the middle of this year until end-March 2018.
“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, as well as to underscore the determination of oil producers to ensure market stability,” the statement said.
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 almost 1.8 million barrels per day (bpd) during the first half of 2017. 1.2 million bpd of the supply cut is to come from OPEC-members.
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The extension of the cut into the first quarter of next year will initially be on the same volume terms as before, although the ministers said they hoped other producers would join the efforts. Traders said it was significant that the joint statement by the world’s two top oil producers came before the May 25 OPEC meeting.
“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.
Russia and Saudi Arabia together control around 20 million bpd in daily output, equivalent to a fifth of global consumption. Undermining efforts by OPEC and Russia has been the United States, which did not participate in the agreement to cut supplies.
U.S. drillers added nine oil rigs in the week to May 12, bringing the total count up to 712, the most since April 2015. Current U.S. production is at 9.3 million bpd, up over 10 percent since its mid-2016 trough.
The big price drivers from the United States, OPEC and Russia have attracted large volumes of financial traders, with an open interest for both crude futures benchmarks hitting all-time records this month of over 2.5 million contracts open for spot Brent, and more than 2.3 million contracts open in front-month WTI crude.