Oil prices rose on Monday after the world’s largest producing oil nations agreed to the largest ever production cut in history to end a price war between Russia and Saudi Arabia.
Opec+, consisting of oil cartel Opec and its allies, agreed to cut production of oil by 9.7 million barrels per day, translating into a near 10 per cent cut of total output.
The original proposal was to cut production by 10 million barrels a day, however that was held up after Mexico refused to agree to that amount.
News of a deal sent Brent crude, the international oil benchmark, up by 1.24 per cent to $31.87 a barrel and U.S. West Texas Intermediate (WTI) crude futures up by 2.24 per cent to $23.27 a barrel.
Reacting to the historic cut, Citi’s global head of commodities Ed Morse said: “Unprecedented measures for unprecedented times.”
The deal brings to an end a month-long standoff between Russia and Saudia Arabia that saw Brent crude reach its lowest point in two decades.
The combination of a plunge in demand caused by coronavirus and a price war between the two countries had led to a huge glut of oil, forcing prices down from $70 in January to just over $30 on Friday.
This had a knock-on effect across the globe, heaping further misery on stock markets already reeling from the Covid-19 outbreak.
Marios Hadjikyriacos, investment analyst at online brokerage firm XM, said that it would take some time for prices to return to normal levels.
“All told, this deal won’t be the medicine that cures the oil market, but it might be a bandage on the wound,” he said.
“Therefore, even though a healthy rally in oil prices looks unlikely until the demand outlook improves, this could at least help establish a floor under prices for now, perhaps preventing a break below the March lows.
“For the tide to really turn though, markets may need to see the lockdowns coming to an end, which sadly is still weeks away at best.”