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World oil prices soared on Monday after several top producers led by Saudi Arabia sprang surprise output cuts.
| Photo Credit: AP
World oil prices soared on Monday after several top producers led by Saudi Arabia sprang surprise output cuts despite already angering the United States with a similar move last year.
Crude futures surged almost eight per cent at one stage, a day after multiple members of the OPEC+ exporters’ alliance unexpectedly slashed production by a total of more than one million barrels per day.
The shock reduction will start in May and last until the end of the year, with OPEC+ saying on Monday it involves Algeria, Gabon, Iraq, Kazakhstan, Kuwait, Oman, Saudi Arabia and the United Arab Emirates.
It came on top of a decision from Russia, also an OPEC+ member, to extend a cut of 500,000 barrels per day.
The oil cartel had already angered Washington in October by slashing production by two million barrels per day.
At the time, the White House accused OPEC+ of “aligning with Russia”, saying the cuts would boost Moscow’s revenue and undermine Western sanctions imposed over its invasion of Ukraine.
Russia’s war on Ukraine stoked inflation as it sent energy prices soaring last year, but crude prices have fallen since then.
OPEC+ said in a statement on Monday that Sunday’s move was a “precautionary measure aimed at supporting the stability of the oil market”.
The Kremlin also defended the decision, saying it was “in the interests of global energy markets for world oil prices to remain at a good level”.
“Whether other countries are happy with this or not is their business,” Kremlin spokesman Dmitry Peskov told reporters.
Sunday’s decision “caught the markets off guard” and reversed recent oil-price gains after fears of a global banking crisis eased, noted ActivTrades analyst Ricardo Evangelista.
“With the fizzling out of the banking crisis and the return of optimism to the markets, the price of the barrel was already showing signs of recovering,” he noted.
“The OPEC+ announcement compounded this dynamic, taking oil prices back to pre-banking-crisis levels.”
The news sparked bumper gains for European energy companies and lifted London and Paris stock markets, although Frankfurt dipped.
Shares in Britain’s BP and France’s TotalEnergies were up more than five percent in afternoon deals, while Shell rose 4.7%.
Oil giants enjoyed record profits last year as crude prices soared.
However, the weekend development also fanned concerns over a fresh spike in consumer prices that could put pressure on central banks to push interest rates even higher — and dent the global economy.
Central banks have been hiking rates in efforts to tame high inflation.
“There’s real concern that the surprise decision… will prompt central banks to maintain interest rates higher for longer, due to the inflationary impact, which will hinder economic growth,” said Nigel Green, head of financial consultancy deVere Group.
Global equities had been buoyed Friday after data highlighted easing inflation in the eurozone and the United States.
Mr. Green said the oil price rises “can be expected to increase the cost of production and transportation, reduce consumers’ purchasing power, disrupt supply chains, and lead to higher inflation expectations.”
Crude prices have come down over the past year as concerns about a possible recession caused by higher borrowing costs have offset supply worries sparked by sanctions on Russia over its war on Ukraine.
“The production cut… clearly shows OPEC was not happy with the movement in the oil price which had fallen over recent months,” said National Australia Bank’s Tapas Strickland.
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