Oil prices jumped 2 per cent yesterday after the energy ministers of the world's two biggest producers, Saudi Arabia and Russia, jointly said that a crude production cut needed to be extended from the middle of this year till March 2018.
Brent crude was US$51.88 per barrel at 2.55pm Singapore time, up 2.1 per cent from its last close, at a level last seen early this month. US West Texas Intermediate crude was US$48.85 per barrel, up 2.1 per cent.
"We've come to a conclusion that the agreement needs to be extended," Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said in a statement yesterday. "The two ministers agreed to do whatever it takes to achieve the desired goal of stabilising the market and reducing commercial oil inventories to their five-year average level."
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 1.8 million barrels per day (bpd) during the first half of this year.
The extension will initially be on the same volume terms as before, although the ministers said they hoped other producers would join in 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 as ensuring that other producers who have so far participated in the cuts will also join in the extension.
"Saudi Arabia and Russia are clearly working closely together. Saudi Arabia seems very determined to push oil prices higher by making this joint statement now," said Mr Oystein Berentsen, managing director of oil trading company Strong Petroleum. Opec will meet in Vienna on May 25.
However, higher output by the United States, which did not participate in the deal to cut supplies, has undermined the efforts of Opec and Russia. US oil output has jumped by more than 10 per cent since mid-2016 to over 9.3 million bpd.
"With the US 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 Mr Matt Stanley, a fuel broker at Freight Investor Services in Dubai.