Since the deal made by OPEC and other producers in mid-2015 to jointly reduce output in order to rein in oversupply and prop up markets, oil prices have peaked.
The international benchmark for oil prices (Brent crude), escalated to $57.89 per barrel in overnight trading between Sunday and Monday. That is the highest level since July 2015.
US West Texas Intermediate (WTI) crude also rose to $54.51 a barrel, also the highest since July 2015.
Brent and WTI eased to $56.58 and $53.92 respectively by 0453 GMT, but were both still up over 4 percent from their last settlements.
“We believe that the observation of the OPEC-11 and non-OPEC 11 production cuts is required to sustainably support… oil prices to our 1H17 WTI price forecast of $55 a barrel,” said Goldman Sachs.
“This forecast reflects an effective 1.0 million barrels per day (bpd) cut vs. the 1.6 million bpd announced cut and greater compliance to the announced cuts is therefore an upside risk to our forecasts,” he added.
OPEC intends to reduce output by 1.2 million bpd from Jan. 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 slash output by 558,000 bpd, short of the target of 600,000 bpd but still the largest contribution by non-OPEC ever.
“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,” AB Bernstein said.
Still, some analysts expect producers, drawn by higher oil prices, to increase output again.
“While better compliance than we expect would initially lead to higher prices – with full compliance worth an additional $6 per barrel to our price forecast – we expect that a greater producer response, especially in the U.S., would eventually bring prices back to $55,” Goldman Sachs said.