As OPEC+ producers abruptly announced they would restrict output, oil prices jumped on Monday.
Global benchmark Brent crude increased 5.31% to $84.13 a barrel, while WTI, the US benchmark, increased 5.48% to $79.83. Those price increases were the most significant in nearly a year.
With the failure of Silicon Valley Bank on March 10 in the United States, oil prices plunged to as low as $73 and $67 per barrel, respectively, as the instability spread to the larger banking industry, igniting concerns of a global recession.
Because of the current increase in oil costs, inflation may continue to rise, putting additional pressure on a contentious problem for consumers worldwide.
The development “comes as a blow for inflation,” Hargreaves Lansdown’s lead stock analyst Sophie Lund-Yates wrote in a note on Monday. Markets understand that if the pressure builds, central banks will have to lengthen or intensify their interest rate hike cycles.
In conjunction with other Organization of the Petroleum Exporting Countries members or allies, Saudi Arabia announced on Sunday that it would begin “a voluntary reduction” in its crude oil production (OPEC). According to a Saudi Ministry of Energy official reported by the country’s state-run news agency SPA, the cuts will begin in May and continue through the end of the year.
The cuts are in addition to those made public by OPEC+ in October, claims SPA. The biggest reduction in production since the start of the pandemic, and roughly equal to 2% of the world’s oil demand, was reached that month when oil companies decided to limit production by 2 million barrels per day.
Saudi Arabia now claims it will reduce oil production by an additional 500,000 barrels per day.
United Arab Emirates production will drop by 144,000 barrels per day, while Iraq will reduce its output by 211,000 barrels per day.
Moreover, Kuwait, Algeria, and Oman will reduce their daily production by 128,000, 48,000, and 40,000 barrels, respectively.
Shell (SHLX), BP (BP), and France’s TotalEnergies all saw increases in their share prices on Monday.
The OPEC+ action was unexpected, but according to Goldman Sachs analysts it was “compatible with the new OPEC+ policy to act pre-emptively because they can, without major losses in market share.”
The nine OPEC+ countries have collectively reduced their daily output by 1.66 million barrels, according to the analysts. Their prediction for Brent’s price in December was raised to $95 per barrel.
According to SPA, the energy ministry of Saudi Arabia justified its most recent cut as a preventative move meant to protect the stability of the oil markets.
Along with the most recent reduction by OPEC+, the White House disputed that idea. According to a National Security Council official, “We don’t think cuts are prudent at this time given market uncertainty, and we have made that plain.” “Not barrels, but pricing for American consumers are our primary concern.”
The White House was already upset by OPEC+’s plan to reduce production in October.
At the time, US President Joseph Biden promised that Saudi Arabia would face “consequences,” but so far, his administration seems to have backtracked on its commitments to punish the Middle Eastern nation.
Members of OPEC+ including Russia announced on Sunday that they would continue a voluntary cut of 500,000 barrels per day through the end of 2023. According to TASS, a state-run news service in Russia, the decision was made public by Deputy Prime Minister Alexander Novak.
That choice came as less of a surprise. The cut would continue until the second half of the year, according to Goldman analysts’ predictions.
