On Monday, crude oil futures logged their highest settlements since July 2015 after more oil producing nations agreed to curb production in an effort to rebalance supplies, according to Bloomberg MarketWatch.
“The latest development is buoying optimism in the market,” said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia. “It shows that the OPEC has overcome a significant hurdle.”
January West Texas Intermediate crude climbed by $1.33, or 2.6%, to settle at $52.83 a barrel on the New York Mercantile Exchange.
On the London ICE Futures Exchange, February Brent crude, the global benchmark, added $1.36, or 2.5%, to end trading at $55.69 a barrel.
Over the weekend, a group of non-OPEC producers — including Russia – agreed to reduce production output by 558,000 barrels a day.
“It has been the long-term goal of Saudi Arabia to get the involvement of Russia and this has been a major geopolitical development and I think it is historic,” said Olivier Jakob an analyst from the Switzerland-based consultancy Petromatrix. “Russia has been very linked to Iran and with this latest development it is also reaching out a little bit to the wider Gulf area.”
The market got an extra boost of confidence on reports that Saudi Arabia indicated that, if necessary, the kingdom may be willing to take a deeper cut than the 486,000-barrel cut it had agreed in the November meeting.
The production cut will begin effect January 1. OPEC will reconvene in six months to assess the deal.
Another concern is how fast the U.S. shale producers will ramp up their production in a bid to capture the higher prices.
Meanwhile, January natural gas fell 23.9 cents, or 6.4%, to end trading at $3.507 per million British thermal units on the New York Mercantile Exchange.