In a surprise move, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, announced a production cut of more than a million barrels per day on Monday. The cut was led by Saudi Arabia and was the biggest since the group slashed two million barrels per day in October.
According to the official Saudi Press Agency, a Saudi energy ministry official stated that the move was a precautionary measure aimed at supporting the stability of the oil market. Crude prices have been on the decline over the past year due to concerns about a possible recession caused by higher borrowing costs, which have offset supply worries sparked by sanctions on Russia over its invasion of Ukraine.
The announcement of the production cut caused oil prices to soar on Monday, with both main crude contracts jumping around eight per cent at one point. However, the decision by the OPEC+ cartel also raised concerns about a fresh spike in prices that could put pressure on central banks to push interest rates higher.
National Australia Bank’s Tapas Strickland said that “the production cut, coming at a time of an uncertain global demand environment, clearly shows OPEC was not happy with the movement in the oil price which had fallen over recent months.”
The OPEC+ production cut also comes in spite of US calls to increase production. Russia, however, did agree to extend a cut of 500,000 barrels per day.
The announcement of the production cut coincided with the release of data that showed US and European inflation had eased further last month, leading to mostly positive movement in equities markets.
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