Oil prices surge after surprise move to cut output

Oil prices have surged after several of the world’s largest oil exporters announced surprise cuts in production.

The price of Brent Crude oil jumped by more than $5 a barrel, or 7%, to above $85 as trading began.

The increase came after Saudi Arabia, Iraq and several Gulf states said on Sunday they were cutting output by more than one million barrels a day.

Oil prices soared when Russia invaded Ukraine, but are now back at levels seen before the conflict began.

However, the US has been calling for producers to increase output in order to push energy prices lower.

High energy and fuel prices last year helped to drive up inflation – the rate at which prices rise – putting pressure on many households’ finances.

Responding to news of the latest cuts, a spokesperson for the US National Security Council said: “We don’t think cuts are advisable at this moment given market uncertainty – and we’ve made that clear.”

The reduction in output is being made by members of the Opec+ oil producers. The group accounts for about 40% of all the world’s crude oil output.

Saudi Arabia is reducing output by 500,000 barrels per day and Iraq by 211,000. The UAE, Kuwait, Algeria and Oman are also making cuts.

A Saudi energy ministry official said the move was “a precautionary measure aimed at supporting the stability of the oil market”, the official Saudi Press Agency said.

Nathan Piper, an independent oil analyst, told the BBC the move by Opec+ appeared to be an attempt to keep the oil price above $80 a barrel in the medium term, given that demand could be hit by a weakening global economy and sanctions have had a “limited impact” on restricting Russian oil supplies.

The latest reductions come on top of a cut announced by Opec+ in October last year of two million barrels per day (bpd).

However, last year’s cut came despite calls from the US and other countries for oil producers to pump more crude.

When the Opec+ group announced its production cuts in October, US President Joe Biden said he was “disappointed by the short-sighted decision”.

The Opec+ group includes the Organization of Petroleum Exporting Countries (Opec) as well as other countries including Russia.

Russia has said it will extend its already-announced production cut, of half a million barrels per day, until the end of the year.

The invasion of Ukraine by Russia in February last year sent energy prices soaring over worries about oil supplies. The price of Brent Crude hit a high of close to $130 a barrel at one point.

Source: BBC