Oil prices surge on trade war truce, prospects for Russian output cuts

Oil prices surged more than 3 percent Monday on prospects for a cut in global output and hope that a ceasefire in the U.S.-China trade war will boost demand for the commodity.

The U.S. benchmark crude oil, West Texas Intermediate, popped more than 5 percent early Monday before paring that gain.

One reason for the gain was the weekend announcement that China would substantially increase its purchases of energy, industrial and agricultural products from America, and President Trump would put on hold his plans to increase tariffs on Chinese goods, including iPhones and laptops.

Stephen Brennock, analyst at brokerage PVM Oil Associates Ltd., said, "The energy complex is starting the new month with a bang as oil bulls receive a shot of adrenaline from easing U.S.-China trade tensions," according to Dow Jones.

But the more significant reason for the price hike was the weekend announcement by Russia that it would join Saudi Arabia and the Organization of Petroleum Exporting Countries (OPEC) in trimming output. The global oil market is suffering from an oversupply, exacerbated in part by massive U.S. shale oil production.

"The market is now pricing in a production cut" of between 1 million barrels a day and 1.5 million barrels a day from OPEC and its production allies, including Russia," said Ole Hansen, head of commodity strategy at Saxo Bank. However, Putin over the weekend said there was "no final decision on volumes."

OPEC and some non-OPEC producers, led by Russia, will discuss output levels at a meeting of the cartel that begins Thursday in Vienna. That meeting is expected to be a rubber stamp for production cuts by Russia and Saudi Arabia agreed upon at last week's G-20 summit in Argentina.

Markets were also buoyed by Canada's oil-rich province of Alberta deciding to cut production by 8.7 percent to support prices.

Dow Jones contributed to this story.