OPEC's shock cut to oil production sends prices soaring

A surprise production cut by the world’s major oil producers has sent prices rising and prompted new inflation fears.

Oil prices surged to $86 a barrel – a 7% rise – after the OPEC Plus grouping, which includes Russia, announced a 1m barrel a day production cut. 

Prices later sunk back to around $84 on Monday morning (3 April).

The move appears to indicate growing tensions between countries such as Saudi Arabia – which was believed to be one of the main instigators of the cut – and the US.

Saudi Arabia was among the countries making the largest cuts in production, at 500,000 barrels a day, while Iraq lowered it by 211,000 barrels. The United Arab Emirates will slash daily output by 144,000 barrels. Kuwait, Algeria and Oman will also lower production.

Russia has announced plans to extend its production cut of 500,000 barrels a day until the end of the year.

A Saudi energy ministry official said the move was "a precautionary measure aimed at supporting the stability of the oil market", according to the state-owned Saudi Press Agency.

But Moscow said it was making the cuts to prop up oil prices – though many analysts believe the measure was involuntary and was made due to the effect of sanctions of production infrastructure following the invasion of Ukraine.

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.”

Given the slowing world economy, it is uncertain how much effect the cuts will have. Before the move by OPEC Plus, oil prices had sunk to their lowest since the start of Russia’s war in Ukraine, and economists have warned that higher oil prices will make the battle against inflation tougher. 

But UK-based motoring organisation RAC said it does not expect petrol prices to rise unless the higher oil price is sustained over several days.

"Any sudden increase in the cost of oil shouldn't result in a rise in the UK average price of petrol for a fortnight, unless of course the barrel price stays higher for several days," RAC fuel spokesman Simon Williams told the BBC.

OPEC Plus previously announced cuts of 2m barrels per day in October 2022 – despite the White House urging the bloc to increase supplies to lower prices and hurt Russia’s finances.

Following the decision last year, US President Joe Biden said he was "disappointed by the short-sighted decision".

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