Oil Prices Surge After Surprise Move to Cut Output
Oil prices surged on Tuesday after the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, announced a surprise decision to cut output by 1.5 million barrels per day (bpd) in April.
The move, which caught markets off guard, was aimed at supporting prices amid a fragile demand recovery from the coronavirus pandemic. OPEC+ had been widely expected to maintain or increase production levels, as some members had been pushing for more output to boost their revenues.
The group’s leader, Saudi Arabia, however, convinced its partners to keep output steady and extend its own voluntary cut of 1 million bpd for another month. The kingdom said it wanted to avoid a repeat of last year’s price crash, when a supply glut and a demand collapse sent oil prices below zero for the first time in history.
The announcement sent Brent crude, the international benchmark, up by 5.4 percent to $67.28 a barrel, while West Texas Intermediate (WTI), the US marker, rose by 5.6 percent to $64.22 a barrel. Both benchmarks hit their highest levels since January 2020.
Analysts said the output cut was a bullish signal for the oil market, as it showed OPEC+’s commitment to balancing supply and demand and supporting prices. They also said it reflected Saudi Arabia’s confidence in the global economic recovery and the prospects of higher oil demand in the coming months.
However, some economists warned that higher oil prices could make it harder to bring down inflation and ease the cost-of-living crisis that has been affecting many countries. They said higher energy costs could add to the pressures on consumers and businesses, who are already facing rising food prices, supply chain disruptions and labour shortages.
They also said higher oil prices could pose a challenge for the global efforts to fight climate change and transition to cleaner energy sources. They said higher fossil fuel costs could reduce the incentives for investing in renewable energy and electric vehicles, and undermine the goals of the Paris Agreement.
