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Oil jumps as Saudi, Russia take lead and extend supply cuts to March 2018

Reuters  |  SINGAPORE 

By Henning Gloystein

(Reuters) - prices jumped 2 percent on Monday after the energy ministers of the world's two biggest producers and jointly said that a crude production cut would be extended from the middle of this year until March 2018.

Brent crude was at $51.88 per barrel at 0655 GMT, up $1.04, or 2.1 percent, from its last close at a level last seen in early May.

U.S. West Texas Intermediate (WTI) crude was at $48.85 per barrel, up $1.01, or 2.1 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.

"We've come to conclusion that the agreement needs to be extended," the statement said.

"The two ministers agreed to do whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial inventories to their 5-year average level," it added.

The Organization of the Petroleum Exporting Countries (OPEC), of which 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 2017. OPEC-members agreed to cut 1.2 million bpd under the deal.

The extension will initially be on the same volume terms as before, although the ministers said they hoped other producers would join the efforts.

and together produce about 20 million bpd of crude, equivalent to one-fifth of consumption. Their clout in policy is seen ensuring that other producers who have so far participated in the cuts will also extend.

"Saudi and are clearly working closely together. Saudi seems very determined to push prices higher by making this joint statement now," said Oystein Berentsen, managing director for trading company Strong Petroleum in

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

Thanks to a relentless rise in drilling activity, mostly from shale producers, U.S. output has shot up by more than 10 percent since mid-2016 to over 9.3 million bpd.

"With the U.S. rig count increasing for its 17th consecutive week, I think we can safely say that the crude battle is well and truly on," said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai.

Financial traders have increased their stakes in the Brent and WTI markets as speculators are taking positions that either OPEC and Russia's effort to support prices will work out, or prices will drop again because of the surge in U.S. supply.

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.

(Reporting by Henning Gloystein; Editing by Christian Schmollinger and Richard Pullin)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)