Markets get caught out as the Energy Ministers Saudi Arabia and Russian Federation announce they will extend the OPEC-led output cuts by nine months to March 2018.
Saudi Arabia and Russian Federation have agreed to extend the oil output reduction deal for another nine months, until 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.
On the news, Brent crude rose 2.3% to $52.04 a barrel while West Texas Intermediate (WTI) climbed 2.6% to $49.09.
Looking at 2Q17, if we assume that April's OPEC crude oil production level of 31.8 [million barrels per day] is maintained, and nothing changes elsewhere in the balance, there is an implied stock draw of 700,000 [barrels per day].
A second source said he expected Iran would probably agree to a nine-month extension when Opec and non-Opec producers meet to set policy on 25 May in Vienna, provided that other producers such as Iraq were also on board.
They recommended that the next round of reductions should be on the same terms as the first deal, when producer nations agreed to cut nearly 1.8m barrels a day for the first six months of 2017.
The ministers will consult with other oil-producing countries with "the goal of reaching full consensus on the 9-month extension" they are seeking, according to the statement.
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Under the current agreement that started on January 1, the 13-country OPEC and other producers pledged to cut output by nearly 1.8 million barrels per day in the first half of the year.
James Woods, global investment analyst at Australia's Rivkin Securities said that oil supplies would likely remain plentiful despite an extended cut. Nigeria's 200,000 barrel-a-day Forcados oil pipeline is ready to export again after being shut down nearly continuously since February 2016.
United States drilling activity last week rose to its highest in two years, while production has jumped more than 10% since its mid-2016 trough.
Saudi Arabia's Energy Minister Khalid al-Falih (L) and Russia's Energy Minister Alexander Novak attend a joint briefing in Beijing, China May 15, 2017.
Crude futures were building on their overnight gains Tuesday morning in Asia, amid expectations that USA data this week will show draws in crude and refined product inventories for the week ended May 12. Sloup says it could surpass that if buoyed by higher prices.
OPEC wants to reduce global oil inventories to their five-year average but so far has struggled to do so.