Oil prices jumped to a three-week high after Russian and Saudi Arabian energy ministers said they would back a nine-month extension to an agreement aimed at bringing down global inventories and lifting prices.
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U.S. crude futures rose $1.01, or 2.11%, to $48.85 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 98 cents, or 1.93%, to $51.82 a barrel on ICE Futures Europe.
Monday's move capped a four-day streak of gains for oil prices, lifting both benchmarks to their highest levels since late April.
In a joint statement Monday, Saudi Energy Minister Khalid al-Falih and Russian Energy Minister Alexander Novak said a pact by the Organization of the Petroleum Exporting Countries and external producers, including Russia, to cut output by some 1.8 million barrels a day should be extended to the end of March 2018.
Analysts and investors have largely come to expect the cuts OPEC and other major producers agreed to in November will be extended through the end of the year.
But the announcement that Saudi Arabia and Russia both support continuing to cut output in the first quarter came as more of a surprise and jolted U.S. crude-oil futures to $49.66 in earlier trading. Investors that had turned bearish in recent weeks rushed to cover short positions.
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The cooperation between the world's two largest oil producers means that $50 a barrel is likely a floor for prices, said Shawn Reynolds, portfolio manager of VanEck Global Hard Assets Fund.
"Whenever prices get down into the [$]40s, you're going to see these guys do something," Mr. Reynolds said. "I really think it's really unprecedented cooperation" between Russia and Saudi Arabia.
Oil prices have sold off sharply at times this year -- most recently earlier in May -- as investors have become doubtful OPEC is making progress toward its goal of working off a glut of crude that has weighed on the market.
Crude stockpiles in the most industrialized nations increased from the fourth quarter of 2016 by 31 million barrels to just over 3 billion -- 276 million barrels above the five-year average, OPEC said last week.
Experts forecast the global glut may be eliminated by the end of 2017 if the cuts are extended.
Extending the cuts another three months likely means inventories will continue shrinking into next year, said Ebele Kemery, head of energy investing at JPMorgan Asset Management.
"We will draw in the first quarter if the cuts are extended through to next year," she said. "There's no doubt in my mind."
Still, some market participants remain concerned OPEC's moves to restrict supply could haunt the market next year. Producers, including U.S. shale drillers, have pounced on the higher prices following OPEC's initial cuts. More oil is coming online from Canada, Brazil, Russia, Kazakhstan and the U.S., notes Commerzbank.
"Any expansion of production would entail the risk of another oversupply, " said Commerzbank analysts in a recent note.
U.S. drilling activity has risen for 17 weeks in a row, according to rig-count data from Baker Hughes. And last week, the U.S. government raised its domestic-production estimates for this year and next.
Rising output in the U.S., CMC Markets chief analyst Michael McCarthy said, will reinforce investor doubt about OPEC's strength.
"OPEC no longer has the clout it once had," he said.
Even if OPEC agrees to extend its production cuts next week, investors will doubt whether the group has the necessary pull to raise prices over time, Mr. McCarthy said.
Gasoline futures rose 1.93 cents, or 1.22%, to $1.5954 a gallon. Diesel futures rose 1.63 cents, or 1.09%, to $1.5096 a gallon.
--Jenny W. Hsu, James Marson, Summer Said and Benoit Faucon contributed to this article.
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(END) Dow Jones Newswires
May 15, 2017 16:55 ET (20:55 GMT)