Oil futures surged 2.6% Monday to close at $52.83 per barrel, crude’s best close since July 2015 and not all of that bullishness is attributable to the Organization of Petroleum Exporting Countries (OPEC).
On Monday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, gained 3.2% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, rose 3.0%. Over the past month, USO increased 11.3% and BNO advanced 13.6%.
Fueling the oil prices gains on Monday, a group of large producers outside of OPEC, including Russia, agreed to scale back output by 558,000 barrels per day, with the bulk of the cuts – 300,000 barrels per day – pledged by Russia, the Wall Street Journal reports.
U.S. shale producers also previously trimmed output to deal with low prices and conserve capital. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers. Russia has also signaled it might trim output as much as some traders have hoped for.
“Almost a dozen non-OPEC producers have agreed to reduce their crude oil output in a bid to support OPEC’s efforts to prop up prices. Among them are Mexico, which has pledged to cut 100,000 bpd from its daily total; Azerbaijan, which agreed to reduce production by 35,000 bpd; and Oman, which will cut 40,000 bpd from its daily output. Kazakhstan also joined the agreement, pledging a 20,000-bpd reduction,” according to OilPrice.com.
Other major oil-producing nations that are not OPEC members but are pledging to curb production include Bahrain, Bolivia, Brunei, Equatorial Guinea, Malaysia, Sudan and South Sudan.
OPEC plans to diminish output to a range of 32.5 to 33.0 million barrels per day from its current estimated output of 33.24 million barrels per day. While Saudi Arabia, OPEC’s biggest producer, has agreed to reduce output, Iran, Libya and Nigeria might not follow suit.
It is not often OPEC and non-OPEC producers agree to limit output.
“Markets were also probably impressed by the revelation by the energy ministers of Russia and Saudi Arabia that the OPEC-non-OPEC deal had been in the making for a year now. This is the first agreement between the cartel and other oil producers since 2001, which is probably why analysts are so enthusiastic,” according to OilPrice.com.