Oil prices jumped after the energy ministers from Saudi Arabia and Russia said they backed extending an Opec-led agreement to cut output until March 2018.
Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak met on Monday in Beijing and discussed oil output policy. Russia is the world’s biggest oil producer, while Saudi Arabia is the biggest exporter.
The two ministers said in a joint statement that they agreed to do “whatever it takes” to reduce global oil stockpiles to their five-year average levels, underscoring the challenge they have faced in shrinking excess inventories and bringing the oil market into balance.
Brent crude, the global benchmark, rose 1.4 per cent to $51.56 a barrel while West Texas Intermediate, the US marker, gained 1.5 per cent to $48.55.
In the statement the two energy ministers emphasised their commitment to “stabilising the global oil market, reducing volatility, and ensuring the balancing of supply and demand in the near and long term”.
They recommended that the next round of reductions should be on the same terms as the first deal, when global producers agreed to cut almost 1.8m barrels a day for the first six months of 2017.
Opec ministers are due at the end of this month to meet in Vienna to discuss the extension of output curbs, seeking to reach agreement among all participating members inside and outside the cartel. While the ministers said on Monday that there was a consensus, the meeting on May 25 is when a final decision will be made on the nine-month extension.
The ministers said the existing supply curbs helped to accelerate inventory declines in industrialised nations in April and May and had driven a drop in oil at sea on tankers.
Even so, Opec’s latest monthly forecasts showed output from the US and other countries outside the cartel had surpassed expectations this year, offsetting curbs from some of the world’s biggest producers, keeping global oil inventories stubbornly high and maintaining pressure on prices.
Opec revised up output growth from US shale and others outside the group by 58 per cent to almost 1m barrels in 2017, and said the world will require just 31.9m b/d of the cartel’s crude on average this year.
This means that demand for Opec’s oil is only 200,000 b/d higher than current output levels, according to the data from consultants and energy analysts submitted to the group, despite deep output cuts that are at least six times as large.
Global energy agencies, including Opec’s own research arm, still believe the oil market will rebalance in the second half of 2017, assuming production does not rise further. Libya and Nigeria, which have been exempt from output cuts and whose production is set to recover in coming months after disruptions, present a risk to the existing agreement.