Oil prices more than 50-cents off the highs

Is the good news already baked into crude oil?

After a meeting of the oil ministers of Russia and Saudi Arabia, they agreed production cuts should be extended to March 2018. A six month extension to year-end had been expected but there have been rumblings of something longer, so it's not a shock announcement.

In any case, Crude jumped from $47.90 to as high as $49.70 on the news. But in the last hour, it's faded back to $47.00.

Now for the bad news

It's a small retracement given the scope of the move but it also might be telling. We learned on Friday that US oil drilling rigs had climbed for the 17th consecutive week and 27th time in the past 28 weeks. Production in the US is steadily climbing and all the drilling means the upcoming pipeline is full.

Meanwhile, Libya (which is exempt from OPEC quotas) revealed on the weekend that it's now producing 814K barrels per day compared to 700K at the end of April. That's the highest since October 2014. Before the 2011 uprising, the nation pumped as much as 1.6 mbpd, so there could be plenty more supply coming.

What's also telling is who didn't make the announcement today. Saudi Arabia is a major influence for many Gulf producers but not Iran. If they insist on ramping up production, it could frustrate other OPEC members and scuttle a deal.

What next

In short, the good news is out there now and OPEC has no cards left to play. Normally, that's the time to sell.

What makes me nervous is experience. Time and time again, the oil market is a strange one. When OPEC abandoned quotas they signaled it way ahead of time and yet, the selling on the announcement was huge. It was similar in November when they announced quotas. Real money is reluctant to move until the news is official, it's probably prudent to wait until after the May 25 OPEC meeting to make any big trades.