Topline
Global oil prices surged early on Monday, after markets were surprised by the announcement of an unexpected cut to crude output by the oil-exporting OPEC+ group of nations a day earlier.
OPEC+ announced a production cut of more than 1 million barrels per day.
Key Facts
Futures of global benchmark Brent crude rose to $84.19 per barrel—its highest level in nearly a month—up more than 5.3% from Friday.
The domestic West Texas Intermediate futures rose above $81 per barrel before settling at $79.69, or 5.38% higher than Friday.
The OPEC+ group of countries on Sunday announced production cuts totaling more than 1 million barrels per day, including 500,000 barrels a day cut by Saudi Arabia.
Iraq said it would cut production by 211,000 barrels per day, the United Arab Emirates by 144,000 barrels and Kuwait by 128,000 barrels.
Russia’s Deputy Prime Minister Alexander Novak also announced that Moscow would extend its 500,000 barrels per day production cut till the end of 2023.
Saudi officials claimed the unexpected cut was a “precautionary measure aimed at supporting the stability of the oil market.”
Chief Critic
The White House reacted negatively to the sudden cut, with a National Security Council spokesperson saying: “We don’t think cuts are advisable at this moment given market uncertainty—and we’ve made that clear.”
Key Background
The latest production cut comes on top of a reduction of two million barrels per day announced by the group in October. A sudden surge in crude oil prices is likely to put more pressure on the Fed in its battle against inflation, which fell to 6% last month. A surge in oil prices following Russia’s invasion of Ukraine drove inflation in the U.S. to a multi-decade high. The Biden administration has argued against production cuts, saying it pushes oil prices up and in turn helps fund Russian leader Vladmir Putin’s invasion.
Big Number
3.66 million barrels per day. That is the total volume of crude oil output that the OPEC+ group of nations has pledged to cut from peak levels, according to a Reuters calculation.
Further Reading
OPEC+ oil alliance announces surprise production cuts from May (Al Jazeera)
Oil Surges After OPEC+ Blindsides Market With Production Cut (Bloomberg)
Source: https://www.forbes.com/sites/siladityaray/2023/04/03/global-oil-prices-surge-after-opec-announces-production-cut/