Global crude prices surged on Monday after non-OPEC producers agreed to participate in OPEC’s production deal.
OPEC said on Monday that a dozen non-OPEC producers have agreed to lower their combined output by 558,000 barrels a day.
That target is slightly shy of the 600,000 bpd cut Secretary-General Mohammed Barkindo told Reuters that he was anticipating last week.
Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan and Republic of South Sudan committed to reducing production.
OPEC said the reductions can either be done voluntarily or through managed decline, in accordance with an “accelerated schedule.”
Two of the participating non-OPEC countries will join the OPEC Ministerial Monitoring Committee that will be chaired by Kuwait with Russia serving as the alternate chair.
The cuts will be effective as of January 1 for an initial duration of six months.
OPEC said the production plan will be extendable for an additional six months “to take into account prevailing market conditions and prospects.”
The deal is the first time that OPEC and non-OPEC producers have agreed to cooperate on production levels since 2001.
OPEC members agreed earlier this month to cut production down by 1.2 million bpd to 32.5 million bpd starting on January 1.
West Texas Intermediate and Brent crude prices surged over the weekend on news of the non-OPEC production cuts.
WTI prices rose by about 4 percent to $53.52 per barrel about an hour after Monday’s opening bell, up from a closing price of $51.50 on Friday.
Brent prices climbed just over 3.8 percent to $56.43 per barrel on Monday morning, up from $54.33 per barrel at Friday’s closing bell.
Surging global crude prices are likely to benefit U.S. shale drillers, especially those operating in the prolific Permian Basin.
S&P Global Platts found that U.S. shale producing regions could see returns in excess of 40 percent after the OPEC cuts are effective.
Platts said it found clear evidence that U.S. shale producers have “incentive to up step production,” with wells in the Permian’s Delaware and Midland areas slated to be the big winners.