Oil prices jumped in the global market after OPEC+ nations announced surprise production cuts of more than 1 million barrels a day in the face of weaker demand.
International oil benchmark Brent crude rose as much as 8.4% to a high of $86.44 a barrel in early Asian trading on Monday, while US marker West Texas Intermediate climbed as much as 8% to $81.69 a barrel.
Brent and WTI later pared gains to be up 4.7% at $83.66 and 4.6% higher at $79.17, respectively. US petrol futures also rose 2.3% to $2.74 per gallon.
The sharp gains for crude came after Saudi Arabia announced it would implement a “voluntary cut” of just under 5% of its output, or 500,000 barrels a day, “in coordination with some other OPEC and non-OPEC countries”.
Russia, a member of OPEC+, also said it would extend its existing production cut of 500,000 b/d until the end of the year.
The cut to production comes amid heightened uncertainty over the outlook for global oil demand after the US publicly ruled out new crude purchases to replenish its strategic stockpile — despite previously pledging to Saudi Arabia that it would buy up more purchases if its reserves fell.
Analysts said the surprise cut to production, which unusually for the cartel took place outside a formal OPEC meeting, was also likely to have been spurred by concerns that recent crises in the banking sector could sap global demand for crude.
In response to the cuts, economists at Goldman Sachs raised the bank’s year-end price forecast for Brent crude by $5 to $95 per barrel on the back of an expected daily decrease in output of about 1.1mn b/d.
The bank also boosted its end-2024 forecast to $100 per barrel.