Ramzi Boudina/Reuters
- OPEC+ nations announced oil output cuts totaling 1.2 million barrels a day on Sunday.
- Crude oil futures rose as much as 8% on the news. They had tumbled in March due to the bank crisis.
- The move is a "precautionary measure aimed at supporting the stability of the oil market," per Saudi Arabia.
The banking crisis in March hammered crude oil prices so much that the Organization of the Petroleum Exporting Countries, or OPEC, stepped in with massive production cuts to stem the bleeding.
Saudi Arabia — the de facto leader of the OPEC — said on Sunday it will cut crude production by 500,000 barrels a day from May till the end of 2023 as a "precautionary measure aimed at supporting the stability of the oil market," according to the state-owned Saudi Press Agency.
On the same day, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, also announced their own production cuts totaling 649,000 barrels a day through their state media outlets, per the Associated Press. Alexander Novak, the deputy prime minister of Russia, said on Sunday the country will be extending its 500,000 barrel-a-day production cut until the end of 2023, per TASS state news agency.
Thanks to the shock production cuts totaling around 1.15 million barrels per day, crude oil prices rose sharply on Monday. The US West Texas Intermediate and Brent crude oil futures jumped as much as 8% and were both 5.6% and 5.4% higher at $79.89 and $84.23 a barrel respectively.
The two benchmark oil grades were last above $80 a barrel earlier in March before the banking crisis sent prices down sharply.
The cuts are seen as a move to boost the oil markets, as prices posted their worst first-quarter performance since 2020, per Bloomberg records. Oil prices have been under pressure since the second half of 2022 due to fears over a global downturn that would, in turn, cut energy demand.
The surprise production cuts could further strain US-Saudi ties.
The surprise oil production cut is expected to put further strain on US-Saudi ties after the Biden administration's lobbying failed to stop OPEC's last round of production cuts in October 2022.
"Resultant intensification of geo-political risks may be disproportionately large given that Saudi not only inadvertently aligns with Russia but is also observed to be cozying up with China." Vishnu Varathan, the head of economics and strategy at Mizuho Bank, wrote in a Monday note seen by Insider.
"We don't think cuts are advisable at this moment given market uncertainty - and we've made that clear," a spokesperson for the US National Security Council told Reuters on Sunday.
The White House did not immediately respond to Insider's request for comment sent outside regular business hours.