Crude oil rose by as much as 6.5 per cent monday to an 18-month high after the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC producers reached their first deal since 2001 to jointly reduce output to try to tackle global oversupply and boost prices.
After a year of wrangling, OPEC had agreed on November 30 to cut output by 1.2 million bpd for six months, effective January 1, 2017, with top exporter Saudi Arabia cutting around 486,000 bpd to curb the oversupply that has dogged markets for two years.
The Guardian of the UK reported that a group of 11 countries, which are not part of the OPEC cartel, also collectively agreed to cut output by 558,000 barrels per day from January 1, 2017.
The cut by non-OPEC bolstered the production cuts agreed by OPEC to stem the worldwide glut in oil and drive prices higher.
Also, the deal between OPEC and non-OPEC producers was the first of such deals between the two groups in 15 years.
Saudi Arabia further signalled that it might be prepared to make deeper cuts, on top of the 486,000 bpd it initially pledged.
“I can tell you with absolute certainty that effective January 1, we’re going to cut and cut substantially to be below the level that we have committed to on November 30,” said Saudi’s Oil Minister Khalid al-Falih after Sunday’s meeting.
Reuters also reported that on Saturday, producers from outside OPEC, led by Russia, agreed to reduce output by 558,000 bpd, short of the target of 600,000 bpd but still the largest contribution by non-OPEC members ever.
From outside OPEC, Russia said it would gradually cut 300,000 bpd.
Following the steps taken by the global producers to reduce the inventory in the oil market, Brent crude futures were up $2.21 at $56.54 per barrel, after hitting a session peak of $57.89, the highest since July 2015.
The price was 50 per cent higher than at this time last year, marking the largest year-on-year rise on any given day since September 2011.
US crude futures were up $2.16 at $53.66 a barrel.
With the deal signed after almost a year of disagreements within OPEC and mistrust in the willingness of non-OPEC Russia to participate, focus is switching to compliance of the agreement.
Saudi Aramco has told US and European customers that it will reduce oil deliveries from January.