Oil prices surge after OPEC’s surprise output cuts

Price jump comes after news oil producers will slash output by about 1.16 million barrels per day.

oil refinery
Saudi Arabia and other OPEC+ producers have announced plans to cut oil production [File: Vivek Prakash/Reuters]

Oil prices have surged after Saudi Arabia and other OPEC+ producers announced a surprise round of output cuts, a potentially ominous sign for global inflation just days after a slowdown in US price data had boosted market optimism.

Brent oil futures jumped $4.30 to $84.19 a barrel on news output would be cut by about 1.16 million barrels per day, while US crude climbed $4.17 to $79.84.

The change comes before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia.

“The involvement of the largest OPEC+ members suggests that adherence to production cuts may be stronger than has been the case in the past,” said Vivek Dhar, an energy analyst at CBA.

(Al Jazeera)

“That means that oil markets may potentially see around 1 percent of global oil supply or more being curtailed from May.”

The latest reductions could lift oil prices by $10 per barrel, the head of investment firm Pickering Energy Partners said on Sunday.

Goldman Sachs lifted its forecast for Brent to $95 a barrel by the end of the year and to $100 for 2024.

“Today’s surprise cut is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share,” Goldman Sachs said.

“While surprising, this cut reflects important economic and likely political considerations.”

The surge in energy costs somewhat overshadowed Friday’s slower reading for core US inflation which had seen Wall Street end the month on a strong note. Central banks in Australia and New Zealand hold policy meetings this week, with the latter expected to hike by another quarter point to 5 percent.

Markets are wagering the Reserve Bank of Australia (RBA) will pause its tightening campaign after 10 straight rises, though analysts are more divided on whether it might still rise.

Source: Reuters