Oil prices surge after OPEC+ announces surprise production cuts
Oil prices have climbed after Saudi Arabia, Iraq, and several other of the world’s largest oil exporters made a surprise announcement on Sunday regarding cutting production by more than one million barrels a day.
The move sent the price of Brent Crude oil jumping by over $5 a barrel, or 7%, to above $85 as trading began. While oil prices soared when Russia launched its so-called special military operation in Ukraine, the numbers are now back at levels seen before the conflict.
However, the US has repeatedly been calling for oil producers to increase output in an effort to push prices down. High energy and fuel prices last year drove up inflation, imposing substantial pressure on several households.
Responding to the latest development, a spokesperson for the US National Security Council said: “We don’t think cuts are advisable at this moment given market uncertainty – and we’ve made that clear.”
Apart from exacerbating the cost-of-living crisis, this surprise announcement could also strain relations between the US and OPEC+. There is a possibility of further squeezing of oil supplies as more members of the group could announce voluntary output cuts.
OPEC+ oil producers account for about 40% of the world’s crude oil output. While Saudi Arabia is reducing production by 500,000 barrels per day, Iraq, Kuwait, Algeria, Oman, and the UAE are also making cuts.
The latest reductions follow another shocking announcement made last October by OPEC+ regarding cutting output by two million barrels per day. A Saudi energy ministry official said the latest move was “a precautionary measure aimed at supporting the stability of the oil market.”
The Saudi Arabia-led OPEC+ includes the Organisation of Petroleum Exporting Countries (OPEC), in addition to other countries like Russia. Russia has also announced an extension of its already-revealed output cut, amounting to half a million barrels per day, until the end of 2023.
Does Sunday’s announcement by OPEC+ share hints of close cooperation between oil-producing countries and Russia?