The oil price has surged to $86 per barrel after the world’s largest producers, the Organisation of the Petroleum Exporting Countries (OPEC) announced a surprise cut in production.
The development, is, however, likely to stimulate fresh tensions with the United States as Western governments try to get a grip on inflation.
According to the Guardian UK, the OPEC+ group of countries, which includes major producers Saudi Arabia, Iraq and Russia, said they would reduce production by around 1 million barrels a day, accounting for about 3.7% of global demand.
The move is atop of existing plans to continue cutting 2 million barrels a day – initially decided in November – until the end of 2023.
The decision instigated an immediate spike in Brent crude futures contracts for May, with the international benchmark for oil prices rising more than 7% to $86 a barrel on Monday morning.
Shares in the UK’s biggest oil producers jumped in response to higher oil prices. BP and Shell were up 4% on Monday morning, making them the top risers on the FTSE 100. The FTSE 250 companies Harbour Energy and Tullow Oil were up nearly 6% and 4%, respectively.
While OPEC+ representatives said the move was proposed to support market price stability, some analysts said members were angling for higher profits.
“Officially, the cartel wants price stability in oil markets,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. “But in reality, they simply want higher prices.”
The cut arises following a drop in oil prices in the first three months of the year, which resulted in its worst first-quarter performance since travel bans came into force at the start of the Covid pandemic in 2020.
The United States came out strongly against the OPEC+ output cut, which could prompt a further spike in fuel prices and consumer costs more broadly. “We don’t think cuts are advisable at this moment given market uncertainty – and we’ve made that clear,” a spokesperson for the US national security council said