Oil prices surged on Monday after non-Opec members agreed to cut output, ahead of a Federal Reserve rate decision later this week.
Non-OPEC countries agreed to cut their output by 558,000 barrels a day, after a landmark output cut by OPEC countries at their meeting in Vienna earlier this month. In January, OPEC countries will cut supply by 1.2 million barrels a day, marking the first global deal of its kind in 15 years.
Analysts at AB Bernstein commented: “Once cuts are implemented at the start of 2017, oil markets will shift from surplus into deficit.”
Oil prices have soared over the last year as supply continues to far exceed demand. The situation was worsened in January after global sanctions against Tehran were lifted, pouring more Iranian oil onto the market.
However, Thomas Moore, investment director at Standard Life Investments, remained sceptical over the impact of the recent output cuts. He told BBC Radio 5 live:
“You will see the oil price jump this morning – that’s understandable – but I think you need to put it in context.
“This is a cut of 550,000 barrels a day, and of course we have had about a million off Opec’s production.
“But if you think about overall world production, Opec’s producing 33 million barrels per day, so those numbers of 1.5 million are good, but they are not that good.
“And Opec accounts for only about 40 percent of world crude production, so yes, there’s a day-one impact, but I think it’s at the edges here.”
Oil surged to a one and a half year high this morning on the news of the non-OPEC cut. WTI Crude is currently up 4.64 percent at $53.89 per barrel, with Brent Crude up 4.21 percent at $56.52 dollars per barrel.
The moves come ahead of United States Federal Reserve meeting taking place on Wednesday, where interest rates are expected to rise for the only the second time since the global financial crisis.