Oil prices jumped by $5 on Monday for the biggest daily rise in nearly a year after a OPEC+ jolted markets with plans to cut more production.
was up $5.31, or 6.7%, at $85.20 a barrel by 1410 GMT after touching its highest for a month at $86.44.
West Texas Intermediate crude U.S. was up $5.10, or 6.7%, at $80.77 after hitting its highest since late January.
The Organization of the Petroleum Exporting Countries and allies including Russia 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, known collectively as OPEC+, 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.
GRAPHIC – OPEC+ production cut effect on oil price
As a result, Goldman Sachs (NYSE:) lowered its end-2023 production forecast for OPEC+ by 1.1 million bpd and raised its Brent price forecasts to $95 and $100 a barrel for 2023 and 2024 respectively, it said in a note.
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.
“They will have nothing of it,” Schieldrop added, citing the group’s likely concern over rising Western interest rates and the global banking system.
The decision means OPEC+ is determined to act over those possible economic storm clouds on the horizon, said Jorge Leon, senior vice president at consultancy Rystad Energy.
“These cuts may be signaling that OPEC+ believes that there are enough recessionary indicators in the market … (and) will further tighten the oil market for the rest of the year and could push prices above $100 per barrel”.
Brent fell last month towards $70 a barrel, its lowest in 15 months, on concern 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.
GRAPHIC – Brent crude price still lower year till date