Oil prices surged as high as 8 per cent before falling back on Monday after the Opec+ alliance and the G20 sealed a historic pact to cut production.
The Opec+ group of oil producers accommodated Mexico, which had stalled negotiations over the volume of its cuts. Following marathon talks, the group eventually agreed to cut back 9.7 million barrels per day for two months starting from May.
Tapered cuts will remain in place until April 2022. Additional contributions from G20 members including the US, which joined global production caps for the first time, could amount to an overall drawback of 19m bpd.
The deal was brokered hours before trading began at the behest of US President Donald Trump who set aside his differences with Opec to back Mexico in fulfilling its quota.
The Latin American country agreed to cut only 100,000 bpd, while Opec+ pushed for 400,000 output curbs. The standoff was resolved when Mr Trump came to his southern neighbour's rescue pledging to cut Mexico's outstanding quota on its behalf.
“The big Oil Deal with Opec Plus is done,” Mr Trump tweeted following the deal on Sunday. “This will save hundreds of thousands of energy jobs in the United States. I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I just spoke to them from the Oval Office. Great deal for all!”
The US president, who is running for re-election this November, had urged Saudi Arabia and Russia to negotiate after low oil prices squeezed the US energy sector, forcing companies into bankruptcy.
"Everything about the virus crisis is unprecedented, including this mega-deal, which six weeks ago could not have been imagined," said Dan Yergin, vice chairman at IHS Markit. "What could not have been imagined is that Donald Trump, who has been a critic of Opec for years, is the one who put it together. Of all the deals he's done in his life, this has to be the biggest and most complex".
Brent futures lost their gains by midday on Monday falling 0.67 per cent at $31.27 per barrel at 1.18pm UAE time, while West Texas Intermediate traded at $23.04 per barrel.
Oil prices have slumped about 70 per cent from their most recent peak in January, hit by falling demand amid the coronavirus pandemic. Prices also took a battering after the collapse of talks between members of the Opec+ alliance in March, which led the producers to promise record supplies in April.
"The agreement by Opec+, led by Russia and Saudi Arabia, to reduce oil production and bring about voluntary market-driven reductions by other G20 producers is unlikely to significantly boost oil prices in the near term, " said Sim Moh Siong, a strategist at the Bank of Singapore.
The deal reduces the "tail risk" of free-falling oil prices into the single digits, even if it doesn't reduce the collapse of global oil demand, he added.
Saudi Arabia's production for May and June will be just under 8.5m bpd, after the world's biggest oil exporter said it would roll back its record output of 12.3m bpd.
"While a cut at this level would not completely balance the market, it would help prevent supply shocks which may happen if oil continues to trade below $30 per barrel leading to the exit of low-cost producers and when the economy recovers," Saudi Arabia's Al Rajhi Bank said in a note.
Saudi Arabia, Kuwait, and the UAE, which backed Riyadh in its early calls for deepening of cuts are expected to cut more than their required quota by an extra 2m bpd.
UAE energy minister Suhail Al Mazrouei said the Emirates, the third-largest producer within Opec will begin cutting back from its current record-high level of output.
"As a reliable supplier, and in line with the Opec+ agreement, the UAE is committed to reducing production from its current production level of 4.1m bpd," he said in a tweet.
While Gulf Arab producers will look to over-comply with their quotas to balance the markets, other producers may find it challenging to achieve full compliance.
"Russia struggled to cut its production by the previously agreed 228,000 bpd and is now being asked to cut by a hguge 2.5m bpd, " said Giovanni Staunovo, commodity analyst at UBS.
"The cuts will do little to tackle the near-term destruction in demand," Mr Staunovo said, adding "but in the longer term they may help re-balance the market if demand recovers in 2H20 [the second half of 2020]".