Global oil prices rose after several leading producers, led by Saudi Arabia, surprisingly announced production cuts, AFP reported.

Crude futures rose nearly eight percent, a day after several OPEC+ members unexpectedly announced production cuts totaling more than one million barrels per day.

The shock reduction will begin in May and continue until the end of the year. It involves Algeria, Gabon, Iraq, Kazakhstan, Kuwait, Oman, Saudi Arabia and the United Arab Emirates.

This is in addition to the decision by Russia – also an OPEC+ member – to extend the cut by 500,000 barrels per day.

The oil cartel already angered Washington in October when it cut production by two million barrels a day.

The White House then accused OPEC+ of “colluding with Russia.” The US said the cuts would boost Moscow’s revenue and undermine Western sanctions imposed over its invasion of Ukraine.

BGNES recalls that Russia’s war against Ukraine led to a sharp rise in energy prices last year, fueling high inflation around the world, but since then crude oil prices have been falling.

OPEC+ said yesterday’s move was a “precautionary measure aimed at supporting the stability of the oil market”.

The Kremlin also defended the decision and said it was “in the interest of global energy markets that global oil prices remain at a good level.”

“Whether other countries are satisfied with this or not is their business,” Kremlin spokesman Dmitry Peskov told reporters.

Restoration of geopolitical tension

Yesterday’s decision is “actually” intended to raise prices, but it could also have a political impact, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The drop in global oil supplies was “enough to revive geopolitical tensions with the US, which has already called the decision reckless, and more than enough to fuel inflationary concerns around the world,” she said.

The news sparked big gains for energy companies and lifted stock markets in London and Paris, although they were lower in Frankfurt. On Wall Street, stocks were also mostly higher.

The shares of the American oil giant “ExxonMobil” and the French “TotalEnergies” rose by more than five percent, and the British BP and “Shell” – by more than four percent.

Last year, oil giants posted record profits as crude oil prices soared.

Higher interest for longer

Developments over the weekend also fueled fears of another spike in consumer prices that could pressure central banks to raise interest rates even further – and hamper the global economy.

“If higher energy prices persist, this could ultimately make the Fed’s fight against inflation more difficult,” analysts at Charles Schwab said.

Central banks are raising interest rates to curb high inflation.

“There is a real concern that the surprise decision … will push central banks to keep interest rates higher for longer because of the inflationary impact, which will hamper economic growth,” said Nigel Green, head of the financial consultancy deVere Group.

Global stocks were underpinned on Friday after data showed easing inflation in the Eurozone and the US.

Green said higher oil prices “can be expected to increase production and transportation costs, reduce consumer purchasing power, disrupt supply chains and lead to higher inflation expectations.”

“The cut in production … clearly shows that OPEC is not happy with the movement of the oil price, which has fallen in recent months,” said Tapas Strickland of National Australia Bank.

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– /AFP

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