Crude oil futures are ripping higher in Asia following news that OPEC and Russia have agreed to extend production cuts due to expire at the end of June.
Following a meeting between the Saudi and Russian energy ministers in Beijing on Monday, the two parties agreed to extend existing production cuts of around 1.8 million barrels per day — implemented at the start of this year — until the end of March next year.
According to Reuters, citing remarks from the Saudi energy minister Khalid al-Falih, the next round of cuts will be on the same terms as the existing deal.
Russia is the world’s biggest oil producer, while Saudi Arabia is the biggest exporter globally. Combined, the two produce around 20 million barrels of crude per day, equivalent to around a fifth of total global demand.
The news has lit a rocket under crude futures in Asia with front-month Brent and WTI futures both adding more than 1.5% from Friday’s closing level.
Brent futures — the global benchmark — currently sit up 1.67% at $51.69 per barrel, extending the recovery from the low of $46.64 per barrel struck on May 5 to 10.8%.
Despite the recent recovery, Brent futures are still down more than 11% from the multi-year high of $58.37 per barrel set on January 3 this year.
A strong recovery in US crude production — not subject to the cuts implemented by OPEC and other crude-producing nations — is one factor that has contributed to that decline, creating concern that it will make it more difficult to rebalance crude markets as supply continues to outstrip demand.
According to data released by the US EIA, US production currently stands around 9.3 million barrels per day, up more than 10% on the levels seen in June last year.
That has corresponded with a sharp increase in US oil rigs in production which rose to 712 last week, according to energy services firm Baker Hughes, the highest number since April 2015.