Oil prices surged more than 5 percent Monday morning after OPEC and non-OPEC producers agreed on a deal last weekend by saying they agreed to a deeper output cut than that is previously agreed, while the U.S . Dollar extended gains ahead of an expected rate hike this week. Brent crude was up as much as 6.5 percent to a year-high above $57.8 a barrel, with WTi spiking a similar amount to $54 a barrel, within minutes of markets opening.
The agreement between OPEC and a number of other oil producing nations was the first joint action since 2001, following more than two years of low prices that strained many government’s budgets and spurred unrest in countries from the Middle East to Latin America.
Russia led the main oil producers from outside the OPEC cartel, including Mexico and Kazakhstan, to reduce supply by 568,000 barrels a day – with Moscow, the largest non-OPEC exporter, agreeing to shoulder over half the cut.
Saudi Arabia and Russia together account for more than a fifth of global oil supplies, but mistrust between the two nations has not easily been overcome. With the direct involvement of President Putin, who has held talks this year with Saudi’s powerful Deputy Crown Prince Mohammed bin Salman, adds weight to Moscow’s commitment. President Putin is expected to put substantial political pressure on the companies to ensure extensive, if not full, compliance.
Riyadh and Moscow are thought to be targeting pushing prices above $60 a barrel next year, though analyst cautioned that they are unlikely to have the market entirely their own way.
U S. oil output has fallen by about 10 percent since early 2015, but U.S. shale drillers have cut cost dramatically and could respond to any price recovery. Some market watchers still harbor doubts whether enough of their pledged cut will be enacted to start drawing down the huge overhang if inventories that built up during the glut. Only time will tell whether [last weekend’s] agreement would eventually break the historical mold.
Market definitely responded positive to the news by having a huge gap up at market opening. I’d be looking to buy dips all the way.