Hong Kong/Atlanta/London (CNN) Oil prices rose on Monday after OPEC+ producers unexpectedly announced production cuts.
Global benchmark Brent crude rose 5.33% to $84.15 a barrel, while U.S. benchmark WTI rose 5.42% to $79.79. Both were the sharpest price increases in nearly a year.
Oil prices fell to $73 and $67 respectively in the week following the collapse of Silicon Valley Bank in the US on March 10.
With oil prices rising now, inflation will remain high for a long time, adding pressure to the hot-button issue for consumers around the world.
“This development comes as a blow to inflation,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdowne, said in a note on Monday. “Markets are aware that central banks may need to extend or strengthen their interest rate hike cycles if pressure continues.”
On Sunday, Saudi Arabia said it would join other members or allies of the Organization of the Petroleum Exporting Countries (OPEC) to begin an “involuntary reduction” in crude oil production.
Saudi state-run news agency SPA reported that the cuts will begin in May and last until the end of the year, an official at the Saudi energy ministry said.
According to SPA, these cuts are on top of those announced by OPEC+ in October.
That month, oil producers agreed To cut production by 2 million barrels per day, the biggest cut since the pandemic began and equivalent to 2% of global oil demand.
Saudi Arabia now says it will cut oil production by half a million barrels a day.
Meanwhile, Iraq will cut production by 200,000 barrels per day, and the United Arab Emirates will cut production by 144,000 barrels per day.
Kuwait, Algeria and Oman will cut production by 128,000, 48,000 and 40,000 barrels per day respectively.
In a note on Sunday, Goldman Sachs analysts said the OPEC+ move was unexpected but “could act proactively in line with the new OPEC+ doctrine as they can do so without significant losses in market share.”
Analysts said the combined production cut by OPEC+’s nine members was 1.66 million barrels per day. They raised their price forecast for Brent this December to $95 a barrel.
Saudi Arabia’s Ministry of Energy described its latest cut as a precautionary measure aimed at supporting the stability of oil markets, SPA said.
The White House has pushed back on that idea — as well as OPEC+’s recent cuts.
“Given the market uncertainty we don’t think cuts are a good idea at this time – we’ve made that clear,” a spokesman for the National Security Council said. “We’re focused on prices for the American consumer, not barrels.”
In October, OPEC+’s decision to cut production was already in place Sorted out the White House.
US President Joe Biden at the time promised that Saudi Arabia would face “consequences”. But so far, his administration seems to have Backtracked on its vow To punish Middle Eastern government.
Russia, a member of OPEC+, also said on Sunday it would extend it Voluntary reduction 500,000 barrels per day by the end of 2023. The move was announced by Russian Deputy Prime Minister Alexander Novak, as cited by Russia’s state-run news agency TASS.
That result was less surprising. Goldman analysts predict the cut will continue into the second half of the year.
— CNN’s Hanna Ziady and Arlette Saenz contributed to this report.