BENGALURU: Oil prices jumped by more than $4 a barrel on Monday, headed for its biggest daily rise in nearly a year after OPEC+ jolted markets with plans to cut more production.
Brent crude was up $4.57, or 5.7%, at $84.46 a barrel by 11:23 a.m. EDT (1523 GMT) after touching its highest since March 7 at $86.44. West Texas Intermediate crude U.S. was up $4.45, or 5.9%, at $80.12 a barrel, after hitting its highest since late January.
The Organization of the Petroleum Exporting Countries and allies including Russia, a group collectively known as OPEC+, shook markets with Sunday’s announcement that it is cutting its production target by a further 1.16 million barrels per day (bpd).
The group had been expected at its monthly meeting on Monday to stick with its previous decision to target output cuts of 2 million bpd until December.
The latest pledges bring the total volume of cuts by OPEC+ to 3.66 million bpd, according to Reuters calculations, equating to 3.7% of global demand.
As a result, Goldman Sachs lowered its end-2023 production forecast for OPEC+ by 1.1 million bpd and raised its Brent price forecasts to $95 a barrel for 2023 and $100 for 2024, it said in a note.
“The Sunday production cut was on no ones radar… With U.S. oil producers focused on capital discipline, OPEC+ remains in control of the oil market,” UBS analyst Giovanni Staunovo said.
U.S. President Joe Biden’s administration said the move was unadvisable and some analysts questioned the rationale for the additional cut.
“What we are witnessing is an adaptive and agile OPEC+ group that is able and willing to act ahead of the curve. The recent market turmoil where Brent crude dropped to $70 a barrel probably gave OPEC+ a bit of a scare,” said Bjarne Schieldrop, chief commodities analyst at SEB.
The decision may have reflected poor demand in the market, Mizuho analyst Robert Yawger said.
“Until last week, we had U.S. crude storage at multi-year highs … there are plenty of cargoes, mostly Russian, floating around in the seven seas looking for a home,” Yawger said.
Brent fell last month toward $70 a barrel, its lowest in 15 months, on concerns that a global banking crisis and rising interest rates would hit demand despite lower OPEC oil output in March after a halt in some of Iraq’s exports.
While the OPEC+ cuts may lift oil prices in the near-term, they also raise the possibility of more rate hikes from central banks fighting inflation. Refiners also may lower activity to counter high crude oil input costs, he said.
The RBOB gasoline futures contract rose almost 8% during Monday’s session to its highest since January. It was last trading at $2.76 a gallon, up about 3%.