The price of Brent crude has surged after Saudi Arabia agreed to cut its output to boost oil prices following a weekend of tense talks.
Saudi ministers agreed to cut 1, m barrels per day bpd from its output from next month, at a meeting of the Opec group of oil-producing nations in Vienna.
The cuts, agreed in a seven-hour meeting that was delayed because of a disagreement between countries, will result in Saudi Arabia's oil output falling to 9 m bpd in July from about 10 m bpd in May, the biggest reduction in years.
Brent crude, the global benchmark for oil prices, rose more than 2% to reach a one-month high of $78.73 63.20 a barrel, before dipping back.
A sustained rise in oil prices could disrupt efforts in the UK by the Bank of England and politicians to tackle steeply high inflation.
Opec, which produces about 40 percent of the world's oil production, also agreed to extend the voluntary output cuts announced two months ago into 2024.
The group, which includes major producers Iraq and Russia, has made the move to boost oil prices, which have fallen as a result of worries about a supply glut and a surge in demand.
The price of oil rose to $120 a barrel last year due to Russia's invasion of Ukraine.
The global economy and the hangover caused by Covid lockdowns have tempered demand for fuel, resulting in lower oil prices, causing prices to drop back to levels seen before the war began.
We wanted to ice the cake, said Prince Abdulaziz, the Saudi energy minister. Our goal is to add suspense to our stories. We don't want people to try to predict what we do, he said. Opec's influence on the global oil market means it typically lowers prices, and last year a decision to reduce production angered the American president, Joe Biden, undermining his attempts to reduce fuel costs.
Monday's rally brought prices back to where they began the year, although Brent crude has reached as high as $82 a barrel as recently as April.
The UAE increased its output target by 200,000 barrels a day from January through an agreement with Opec.
Several African members will be reduced from next year's quotas, bringing them closer to their actual production capacity.
The gift to some Opec members in expense of the others hint that we could see further cracks within the cartel in the next few months, and that snot a winning setup for Opec, and oil bulls. Naeem Aslam, the chief investment officer at Zaye Capital Markets, said an expected pickup in oil demand after Covid had not materialised.
Oil bulls have been banking big time on Chinese demand, but in reality, we have not seen a serious strength in oil demand, and this indicates that the global economy is still grappling with a number of Covid shocks such as higher inflation and the threat of a serious slowdown in economic activity.