Energy ministers from some of the world's largest oil producers have agreed to deepen recurring production cuts by an additional 500,000 barrels per day (b/d) through to March 2020.
OPEC and non-OPEC allies, often referred to as OPEC+, decided to implement tighter oil production policy at a biannual meeting in Vienna, Austria on Friday.
The new deal, which is much larger than many analysts had expected, will see OPEC+ reduce total oil output by 1.7 million b/d.
The energy alliance has said it plans to review the policy at an extraordinary meeting on March 5-6.
Oil prices rallied shortly after the OPEC+ announcement. International benchmark Brent crude traded at $64.70 on Friday afternoon, up around 2%, while U.S. West Texas Intermediate (WTI) stood at $59.63, over 2% higher.
However, Brent crude futures remain around 15% lower when compared to an April peak, with WTI down almost 12% over the same period.
Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman told reporters on Friday that the oil-rich kingdom's quota would be an additional 167,000 b/d through to March 2020.
Sitting alongside OPEC delegates at a press conference shortly after the meeting, Abdulaziz explained his country would also extend a voluntary cut of 400,000 b/d. This means the energy alliance's total cuts would effectively amount to 2.1 million b/d, he said, before emphasizing that OPEC+ would only be able to achieve this figure with improved compliance.
OPEC's de facto leader, Saudi Arabia has been adamant those that have previously been overproducing — such as Iraq and Nigeria — must comply with the group's quota.
Russian Energy Minister Alexander Novak said Moscow's quota would be 300,000 b/d during the first three months of 2020. This measurement excludes gas condensate — a high-value light crude extracted as a by-product of gas production.
The energy alliance was prompted to act after global oil prices tumbled in mid-2014 due to an oversupply, but U.S. shale producers are not a part of the deal and shale oil supply has grown exponentially.
The U.S. is now the world's largest oil producer hitting 12.3 million b/d in 2019, according to the U.S. Energy Information Administration, up from 11 million b/d in 2018. It produces more oil than Saudi Arabia and Russia now, although there are signs that production growth is slowing in the States.
Along with rampant shale supply, faltering demand due to a global economic slowdown, exacerbated by the Sino-U.S. trade war, has once again threatened to unbalance oil supply and demand dynamics.