Oil prices jumped over 1.5 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.
Brent crude was at $51.65 per barrel at 0500 GMT, up 81 cents, or 1.6 percent, from its last close to levels last seen in early May.
U.S. West Texas Intermediate (WTI) crude was at $48.62 per barrel, up 78 cents, or 1.6 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.
“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 Organisation 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.
OPEC members agreed to cut 1.2 million bpd under the deal.
The extension of the cut 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 political and economic clout in oil markets goes a long way to ensure 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. U.S. drilling activity last week rose to its highest since April 2015.
Current U.S. production is at 9.3 million bpd, up over 10 percent since its mid-2016 trough.
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.