The timing of the announcement ahead of OPEC's next official meeting on May 25 and the statement's strong wording surprised markets, and the move is expected to go a long way to ensure that other OPEC members and producers who participated in the initial round of cuts fall into line, Reuters reported.
In a joint statement that followed an earlier meeting, Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said they had agreed to prolong an existing deal until March next year.
The ministers pledged 'to do whatever it takes' to reduce global inventories to their five-year average and expressed optimism they will secure support from producers beyond those in the current deal, the statement said.
"There has been a marked reduction to the inventories, but we're not where we want to be in reaching the five-year average," Falih told a briefing in Beijing alongside Novak.
"We've come to conclusion that the agreement needs to be extended."
Saudi, the de facto leader of OPEC, and Russia, the world's biggest producer, together control a fifth of global supplies.
Under the current agreement that started on January 1, the Organization of the Petroleum Exporting Countries (OPEC), and other producers including Russia pledged to cut output by almost 1.8 million barrels per day (mbd) during the first half of the year.
While it was broadly expected that OPEC and Russia would agree to extend the cut, the timing and wording of the statement sent crude prices up more than 1.5 percent in Asian trading.
"I think OPEC and Russia recognize that in order to get the market back on their side they will need 'shock and awe' tactics where they need to go above and beyond a simple extension of the deal," said Virendra Chauhan, Singapore-based analyst at Energy Aspects.
"The market will also be looking at export cuts and not just production cuts, which is what is required to rebalance the market."
Russia's top producer Rosneft helped prepare the deal and is ready to comply with the extension, according to Russian media.
If producers maintain their cuts at the current pace, it could push the market into a small deficit by the fourth quarter, said Edward Bell, director for commodity research at Emirates NBD in Dubai.
A jump in US exports to Asia — the world's biggest and fastest growing market and the last region in which OPEC supplies dominate — is a particular worry for the producer club.
"Russia and Saudi Arabia may be trying to coordinate a push to keep access to their most important market (China) in their favor and encourage Chinese importers to displace alternative cargoes," said Bell.
In December 2016, OPEC reached a landmark agreement with Russia and other non-members to proceed with the plan and slash oil production for six months starting January 2017.
The agreement exempted key member Iran from the plan, allowing it to increase its production by 90,000 bpd to reach pre-sanction levels of around 4 mbd.
Nigeria and Libya were also exempted from the planned output cut due to internal conflicts which have already lowered their crude production.