Saudi Arabia and Russian Federation said on Monday they agreed on the need for a 1.8 million barrels per day (bpd) crude supply cut to be extended for nine months, until the end of March 2018. Taking the big bazooka of the wall, they jointly announced that the OPEC-led production deal would be extended by nine months until March 2018.
Global benchmark Brent increased by as much as 3.3 per cent to US$52.52 a barrel on ICE Futures Europe and West Texas Intermediate climbed by up to 3.4 per cent, to $49.45 a barrel on the New York Mercantile Exchange.
Energy ministers from the two countries said on Monday that supply cuts should be prolonged for nine months, until March 2018.
"Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018".
The Organization of the Petroleum Exporting Countries, Russia and other producers originally agreed to cut output by 1.8 million barrels per day in the first half of 2017, with a possible six-month extension, in a bid to shore up prices.
Undermining efforts by OPEC and Russian Federation to stabilize the market has been the United States, which did not participate in the agreement to cut supplies. It estimates that U.S. crude oil production will rise in the seven shale regions by 122,000 bpd to 5,401,000 bpd in June 2017-compared to the previous month.
United States crude stockpiles are forecast to have declined by 2.75 million barrels to 519.8 million barrels in the week ended May 12th, according to a Bloomberg survey of analysts.
Prices are up by 2% since the announcement of the planned extension on Monday, compared with an over 15% jump in the two days following the announcement of the initial cut on November 30, 2016. In addition to production cuts and steady demand growth, a major contribution to falling crude stocks in the next few months will be a ramp-up in global crude oil runs.
Some analysts said that USA production could still threaten to disrupt the market balance unless the cuts were deepened.
"The market is certainly reacting to comments from Saudi Arabia and Russia's ministers, and it should help at least maintain current prices", Will Yun, commodities analyst at Hyundai Futures, told The Independent. "Get prepared for real sacrifices or we will have to say goodbye to the deal", he said. "However, we'll see whether the rebound remains until the USA market opens".