Oil prices spiked sharply in early trading on Monday, with Brent crude, a widely traded crude oil in the global market that is also used as a benchmark for pricing other kinds of crude oils, rising 5.31% to around $85 per barrel, the highest price increase in nearly a year.
Saudi Arabia headed the cartel by pledging its own supply reduction of 500,000 barrels per day. Kuwait, the United Arab Emirates, and Algeria followed suit, while Russia stated that the production cut implemented from March to June would remain until the end of 2023. Saudi Arabia claims that the production reduction is a precautionary measure that will help stabilize the oil market.
“It has been apparent that Saudi Arabia is prepared to endure increased friction in the bilateral relationship” with Washington, wrote Croft, an analyst at RBC Capital Markets.
Oil exports play a significant role in the stability and economic development of nations like Saudi Arabia and Russia. A recession or even a financial crisis may result from a significant drop in revenue due to a reduction in oil output. Additionally, the COVID-19 pandemic has already had a major negative impact on the world economy, and further reductions in oil production could make the situation worse.
Other OPEC+ oil producers also announced additional cuts to oil production of about 1.16 million barrels per day in a sudden move that experts predicted would drive up prices right away and the US called unwise.
The action has once again demonstrated the determination of Saudi Arabia and its oil minister, Prince Abdulaziz bin Salman, to take proactive measures to maintain high prices, possibly in the region of $90 per barrel.
Countries that produce oil are hoping that the decrease in output will cause costs to increase even more. Despite the global energy catastrophe, the cost of a barrel of crude oil has dropped by about 10% over the past few months. The price appeared to recover briefly last week, but it appears that the OPEC nations believe that additional efforts are required to give that price growth another boost.
Source: CNN, NYTIMES