Oil prices soared as much as 8% on Monday after OPEC+ announced it was slashing output by 1.16 million barrels per day. The voluntary cuts will start from May to end 2023, Saudi Arabia announced, saying it was a “precautionary measure” targeted toward stabilizing the oil market.
The move comes on the back of Russia’s decision to trim oil production by 500,000 barrels per day until the end of 2023, according to the country’s Deputy Prime Minister Alexander Novak. Other member states have also pledged respective cuts, with OPEC Kingpin Saudi Arabia reducing 500,000 barrels per day and UAE cutting 144,000 barrels per day, amongst other cutbacks from Kuwait, Oman, Iraq, Algeria and Kazakhstan.
Analysts warn that the production cut may push oil prices toward the $100 mark again, considering China’s reopening and Russia’s output cuts as a retaliation move against western sanctions. They also noted that the cut could reverse the decline in inflation, which would “complicate central banks’ rate decisions”.
Oil prices have been under pressure since the second half of 2022 due to fears over a global downturn that would, in turn, cut energy demand. The surprise production cuts could further strain US-Saudi ties after the Biden administration’s lobbying failed to stop OPEC’s last round of production cuts in October 20222.