Brent crude has jumped more than 8% to trade above $50 per barrel, after OPEC members agreed to cut oil production by 1.2 million barrels per day.
At a meeting in Vienna yesterday, members of the Organisation of the Petroleum Exporting Countries (OPEC) agreed to cut oil production to 32.5m barrels a day from January 2017.
Brent crude climbed over 8.1% to $50.12 per barrel on the news, as rivals Saudi Arabia and Irania were reported to have signed an agreement after weeks of negotiations.
According to Bloomberg, Khalid Al-Falih, energy minister of Saudi Arabia, said: "We have made it clear we will cut percentage-wise equal to everyone else. The exceptions are three countries; Libya and Nigeria will be allowed to increase production and Iran, which has suffered from sanctions, will be allowed to freeze at their pre-sanctioned levels.
"We are discussing the details and we go to this meeting hoping and relatively optimistic that a deal will be made."
Al-Falih's comments were echoed by Bijan Zangeneh, Iran's oil minister, who also said he was "optimistic" about a deal to cut production.
Joshua Mahony, market analyst at IG, said: "Should we see an agreement today, it would represent one of the most important days for oil markets in years, with the Saudis essentially abandoning their attempts to push out US producers from the market."
OPEC members made a preliminary deal to cut oil production to 32.5-33 million barrels per day back in September, but over the past few weeks a deal has appeared less likely, with the rivalry between Saudi Arabia and Iran proving to be the main stumbling block.
But these issues seemed to abate this morning, with Saudi Arabia appearing to allow Iran to return to its pre-sanction output levels in a bid to make an eleventh hour deal.
However, Adrian Lowcock, investment director at Architas, was less confident the deal, even if reached, would be implemented by the members.
He said: "Investors need to be careful as any restriction or cut may not be implemented in reality to the same extent and we have seen that over the last few years.
"Saudi Arabia had less influence over controlling actually what happens on the ground. With the price of oil rising to $50 a barrel that prices in a lot of expectation that what is said will come true, and I am not 100% convinced that will be the case."
Chris Beauchamp, Chief Market Analyst at IG, is also sceptical the deal is as good news for markets as investor sentiment suggests, as the cut "will simply take us back to levels of output seen in May".
"It does not take a technical analysis whizz to work out that does not really change the underlying trend in OPEC production. And then there's Russia, which has dropped hints about a supply cut, but has still to officially confirm this," he said.
"Oil traders will be on the lookout in coming weeks for any sign that members are flouting the provisions. BP and Shell soared on the news, helping to lift the FTSE 100, and it looks like these firms will be at the forefront of further bullishness, since, if nothing else, a stabilisation in oil prices will help keep fears about a dividend cut on the back burner."
Viktor Nossek, director of research at WisdomTree, said: "While prices may climb further in the very near-term, we expect any gains will be short-lived, with US production likely to ramp up to exploit higher prices.
"Put simply, OPEC has not solved the supply glut, and indeed this merely shows how much Saudi Arabia's positon has weakened when it comes to its role as the price maker in oil markets.
"With a more stable supply side situation now the norm thanks to US shale production, any further upside for the oil price from current levels is unlikely to be sustainable, but that does not mean there will not be a spike in volatility around the price.
"Indeed, we would expect to see investors speculate whether OPEC will make further cuts, especially if today's rally is as short-lived as we expect it to be. What is clear is that OPEC has not ushered in a new era of higher prices, with this meeting unlikely to lead to any major directional change for oil in the near to mid-term."
Aberdeen Asset Management Investment Strategist Bob Minter, said: "People were seriously starting to question OPEC's ability to react to what has been going on in the oil market and this reaffirms their ability to act as a group.
"Greatly increased demand for oil is not necessarily a given in the years to come. Trump might try to tear up the Paris Accord but it's the likes of India and China that matter the most and they don't want to rely on oil.
"OPEC is going to need to harness all of its powers of coordination and bargaining to chart this existential threat."
The chairman isn’t answering his email
Reforms not enough
An economic cocktail
To encourage consumers to shop around
Will report to Pat Shea