Oil prices soared after some of the world’s biggest exporters announced sudden production cuts.
Brent crude is trading above $84 a barrel after gaining more than 5%.
The surge comes after Saudi Arabia, Iraq and several Gulf states announced on Sunday that they would cut production by more than 1 million barrels per day.
In addition, Russia said it would extend the cut of 500,000 barrels per day until the end of the year.
Shares of energy giants BP and Shell each rose more than 4% on Monday. Oil prices soared when Russia invaded Ukraine, but are now back at pre-conflict levels. But the U.S. is asking producers to ramp up production to keep energy prices down.
Last year’s surge in energy and fuel prices pushed up inflation, putting pressure on many households.
KPMG chief economist Yael Serfin warned that higher oil prices could complicate the fight to bring down inflation. But she said higher oil prices don’t necessarily translate into higher home energy bills. “The energy price cap that households will benefit from has already been identified based on previous market expectations,” she said. “Furthermore, household energy consumption tends to be higher with gas than with oil.”
The biggest impact will be on transportation costs, she said, as we could see fuel prices skyrocket. “And that could lead to other costs, which means inflation will take time to settle.”
Commenting on the recent cuts, a spokesman for the US National Security Council said: “Given market uncertainty, we do not believe any cuts are desirable at this time. We have made that clear.”
Production cuts are made by members of the OPEC+ oil-producing countries. This group accounts for about 40% of the world’s total crude oil production. Saudi Arabia cuts production by 500,000 barrels a day and Iraq by 211,000 barrels. UAE, Kuwait, Algeria and Oman are also cutting back.
A Saudi Energy Ministry official said the move was a “precautionary measure aimed at helping stabilize the oil market.”
Independent analyst Nathan Piper told the BBC that OPEC+’s move looked like an attempt to keep oil prices above $80 a barrel in the medium term about Russia’s oil supply restrictions.
Analysis by Sameer Hashmi, Middle East Economic Correspondent
This surprise announcement is significant for several reasons. Despite price volatility in recent months, there have been concerns that global oil demand could outstrip supply, especially towards the end of the year. Rising oil prices following Sunday’s announcement could put further pressure on inflation, exacerbating the cost of living crisis and increasing the risk of a recession. Interestingly, this announcement came just one day before his Opec+ conference. I was surprised because the members hinted that the production policy would remain the same, that is, they would not release new cuts. More members of the group may announce voluntary cutbacks – further squeezing supplies. The development could also further strain relations between the US and his Saudi-led Opec+. The White House had urged the group to increase supply to keep prices down and Russia’s finances in check.
But Sunday’s announcement also underscores close cooperation between oil-producing countries and Russia.The latest cuts come on top of his 2 million barrels per day (bpd) cut announced by Opec+ last October. But last year’s cuts came despite calls from the United States and other countries for oil producers to produce more.
When the OPEC+ group announced production cuts in October, US President Joe Biden said he was “disappointed by the short-sighted decision.”
The Opec+ group includes the Organization of the Petroleum Exporting Countries (OPEC) and other countries, including Russia.
Russia’s invasion of Ukraine last February pushed up energy prices on concerns over oil supplies. The price of Brent crude rose to near $130 a barrel at times.