The OPEC+ group has surprised the markets by announcing a sizeable cut in overall production, with oil prices increasing on news of the move.
The price of Brent Crude has dropped to as low as $75 per barrel in recent months due to economic concerns following a string of banking collapses and rescues, but news that OPEC+ would be cutting production by over a million barrels per day (bpd) sent the price up to $86 per barrel before losing some of its gains.
The cuts will be in addition to the cut of 2 million bpd announced toward the end of last year. Russia has also unilaterally cut its production by 500,000 bpd after struggling to find buyers for its crude oil. The total cut is now equivalent to about 3.7% of the global demand for oil. Representatives of OPEC said the move is necessary to keep prices stable.
CMC Markets UK’s chief market analyst, Michael Hewson, said that with the surprise announcement that OPEC+:
“…would be cutting output by 1.1m barrels a day from next month, we could well see the economic boost offered by the recent fall in energy prices start to reverse if this morning’s surge in oil prices gains traction and starts to head towards $100 a barrel.”
Producers with operations outside the OPEC+ group—such as ExxonMobil, the maker of the Mobil DTE hydraulic oil and other industrial fluids—are not affected by the production cut. However, the group still has a powerful effect as a swing producer in driving market forces.