Oil prices rose sharply on Monday, driven by a drop in U.S. oil drilling rig numbers. The rally in crude prices has given hope for overall commodity markets too as most commodities except gold climbed higher today.

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U.S. Developments

The fall in the U.S. oil rig count has underpinned hopes that the oversupply scenario in the commodity can be controlled. West Texas Intermediate jumped 3.44% to $30.66 during the late Asian hours while Brent Crude, global benchmark broke the $34 per barrel level today, registering a gain of 3.4% as well.

The positive sentiment around oil helped global stock markets start their week on a strong note. According to the latest data, the number of U.S. oil rigs has touched its lowest level since December 2009, as per a report from Baker Hughes (NYSE:BHI). The fall in rig count is taken as an indication that oil output in the U.S. is set to fall drastically, which will contribute to the reduction in the global oil supply.

Caution remains

Analysts at Goldman Sachs (NYSE:GS) said that the decline in the rig count would lead to a relative decrease in the U.S. oil output by 445,000 barrels per day year-on-year in 2016. However, analysts at Morgan Stanley (NYSE:MS) believe that the markets are not yet out of the woods. The research firm is weighing the impact of the decline in demand growth, which remains a concern for the recovery in oil prices and might push back the rebalancing time between demand and supply. The bank’s analysts are particularly concerned about demand from China.

Overall, the market appears to be paying more attention to the deal between Russia and Saudi Arabia last week. According to the agreement, the two oil producing nations along with two other OPEC members have agreed on maintaining output at January levels.