(LONDON) Oil prices soared on Monday the day after the surprise decision of several member countries of the Organization of the Petroleum Exporting Countries and their allies (OPEC) to carry out a major cut in their production of crude.
Around 5:20 a.m. EST, a barrel of Brent North Sea crude for June delivery, which is the first day of use as a benchmark contract, was up 5.01% at 83.89 dollars.
Its American equivalent, a barrel of West Texas Intermediate (WTI), for delivery in May, gained 5.14% to 79.56 dollars.
Several major oil-exporting countries announced on Sunday, to the surprise of the market, a reduction in their crude production from May until the end of 2023.
This cut of more than one million barrels per day, announced Sunday by Iraq, Algeria, Saudi Arabia, the United Arab Emirates, Oman, Kuwait and Kazakhstan will begin in May and will last until the end of the year.
Riyadh will cut production by 500,000 bpd, Iraq by 211,000 bpd, the Emirates by 144,000 bpd, Kuwait by 128,000 bpd, Kazakhstan by 78,000 bpd, Algeria by 48,000 bpd and Oman by 40 000 bpd, each country said.
Russia has meanwhile made it clear that it will extend its previously announced 500,000 barrel crude oil production cut until the end of the year.
“With the end of the banking crisis and the return of confidence in the markets, the price of the barrel was already showing signs of recovery, and the announcement (by certain OPEC member countries) reinforced this dynamic, bringing the oil prices at their pre-banking crisis level,” says Ricardo Evangelista, analyst at ActivTrades.
The recent banking crisis had indeed weighed heavily on oil and commodity prices, with investors preferring to move away from more volatile risky assets in times of uncertainty.
Especially since “most of the reductions will be made by countries producing at or above the quotas” imposed by OPEC, which implies “real supply reductions” and a tightening of the market, explain DNB analysts.
