An unexpected announcement by the OPEC+ group of oil producing countries of a plan to slash their combined output by another 1.15 million barrels per day pushed the prices of crude up by as much as 6% in early Monday trading.
The oil producers, who control roughly 50% of global oil supplies, reached a decision to reduce their output starting from May until the end of 2023, in a move designed to stabilize the markets, according to a series of announcements on Sunday night.
Riyadh said it would cut its output by 500,000 barrels per day, while Baghdad announced a cut of 211,000 bpd. The UAE will reduce production by 144,000 bpd, Kuwait will cut 128,000 bpd, Kazakhstan 78,000 bpd, Algeria 48,000 bpd, and Oman 40,000 bpd.
Crude prices jumped on the news, with international benchmark Brent rising more than 5.5% to $84.30 a barrel, while US West Texas Intermediate crude futures soared 5.6% to $79.90 a barrel as of 9:00am GMT on Monday.
Russia already voluntarily cut oil output by 500,000 bpd back in March, in retaliation for an oil price cap introduced by the West, which it said would eventually result in scarce supply and trigger uncertainty in the global market. On Sunday, however, Moscow announced it will synchronize with OPEC in extending its cut until the end of the year.
Moscow believes the move will contribute to the stabilization of crude oil prices, which fell sharply on concerns that the Western banking crisis could weaken global energy demand.
The Saudi Ministry of Energy called the move a “precautionary measure aimed at supporting the stability of the oil market.” Last month, Saudi Energy Minister Prince Abdulaziz bin Salman warned Western states against capping the price of crude oil supplied by the kingdom, adding that any attempts to impose a ceiling would be met with a halt of sales and production cuts.
The move left Washington disappointed, as it comes in defiance of US pressure on oil producers to increase their production and lower the prices. President Joe Biden even traveled to Riyadh last July to petition Crown Prince Mohammed bin Salman directly, to no avail.
“We don't think cuts are advisable at this moment given market uncertainty – and we've made that clear,” a spokesperson for the National Security Council told Reuters on Sunday.