Oil is getting whacked even after OPEC agreed to extend production cuts

Crude oil tumbled on Thursday even after OPEC and its allies extended their agreement to lower production by nine months.

The Organization of Petroleum Exporting Countries - a cartel of major oil producers - extended the deal that started in January to address the global supply glut that has subdued prices. Non-OPEC producers including Russia also agreed to cut production through March, said Bijan Namdar Zanganeh, Iran's minister of petroleum, according to Bloomberg.

The extension had been widely expected. West Texas Intermediate crude oil, the US benchmark of prices, rallied about 17% from its year-to-date trough at the beginning of May through Wednesday. But on Thursday, in what appeared to be an enactment of the markets parlance "buy the rumor, sell the news," WTI tumbled more than 3.5% and back below $50 per barrel to as low as $49.44.

"We've seen this kind of action time and time again," said Craig Erlam, a senior market analyst at Oanda, in a note. "Traders buy on anticipation of the deal and when its delivered as expected, they take their profits and run. The unwinding of the positions, probably combined with some speculative selling, is what creates this sudden plunge."

Besides profit taking, traders also realize that the deal does not immediately solve the oil market's oversupply problem. OPEC members typically do not comply with quota agreements, and US shale producers are likely to continue flooding the market, according to Tortoise Capital Advisors.

OPEC is scheduled to meet again in November.