An oil worker at twilight in  Siberia. Photo: Reuters / Sergei Karpukhin
An oil worker at twilight in Siberia. Photo: Reuters / Sergei Karpukhin

Oil prices shot up by 4% to their highest level since 2015 early on Monday after OPEC and other producers over reached their first deal since 2001 to jointly reduce output to rein in oversupply and prop up the market.

Brent crude futures, the international benchmark for oil prices, soared to US$57.89 per barrel in overnight trading between Sunday and Monday, its highest level since July 2015.

US West Texas Intermediate crude futures also hit a July 2015 high of US$54.51 a barrel.

With the deal finally signed after almost a year of arguing within the Organisation of the Petroleum Exporting Countries and mistrust in the willingness of non-OPEC Russia to play ball, the market’s focus will now switch to compliance of the agreement.

OPEC has said it will slash output by 1.2 million barrels per day (bpd) from January 1, with top exporter Saudi Arabia cutting around 486,000 bpd in a bid to end overproduction that has dogged markets for two years.

On Saturday, producers from outside OPEC agreed to reduce output by 558,000 bpd, short of the initial target of 600,000 bpd but still the largest contribution by non-OPEC ever.

Of that, Russia said it would gradually cut 300,000 bpd, adding that by the end of March it would be producing 200,000 bpd less than its October 2016 level of 11.247 million bpd.

“Once cuts are implemented at the start of 2017, oil markets will shift from surplus into deficit. Given the cuts in production announced by OPEC, we expect that markets will move into a 0.8 million bpd deficit in 1H17,” said investment management research firm AB Bernstein.