Tullow oil plant
Oil futures extend gains as traders priced-in Opec cuts.Reuters

Oil benchmarks remained in positive territory on Thursday (18 May), as the market continued to extend long trades, or bets in favour of rising prices, on robust statements from Russia and Saudi Arabia in favour of extending oil production cuts.

Both countries said on Monday they would extend an agreement to cut output, originally designed to end in June 2017, for a further nine months until March 2018.

Speaking at the end of a meeting in Beijing, Saudi energy minister Khalid al-Falih and his Russian counterpart Alexander Novak stated both countries would do "whatever it takes" to reduce the current oil glut.

However, acting as a counterweight, the International Energy Agency (IEA) downgraded its 2017 US demand growth expectations to zero.

Overall the IEA's global demand outlook has been revised down only by a marginal 45,000 barrels per day (bpd) compared to last month's report and is now seen at 1.3 million bpd.

At 6:05pm BST, the Brent front month futures contract was up 0.80% or 42 cents to $52.63 per barrel, holding firm above the psychological $50 level. Concurrently, the West Texas Intermediate (WTI) was seen inching closer to $50, coming in at $49.45 per barrel, up 38 cents or 0.77%.

Michael Wittner, global head of oil research at Societe Generale, said the market was well on its way toward bracing for an Opec cut. "Following the Saudi-Russia announcement, a nine-month extension of current targets by Opec at next week's meeting appears to already be largely priced in.

"For the global crude markets, fundamental demand strength in the coming weeks may have to come from seasonal gains in refining runs in Europe and Asia, led by China - provided that product demand and refining margins remain healthy."

FXTM research analyst Lukman Otunuga said the Opec versus US Shale saga feels like a fierce battle of attrition with the victor taking the spoils. "While most remain optimistic over Opec extending the production deal at the upcoming meeting on 25 May, it becomes a question of how US shale reacts and if (American) pumping intensifies."