Oil prices surged Monday morning on the unexpected news that OPEC+ will cut production by an additional 1.16 million barrels per day amid fears about global supply and market tightness, particularly in the second half of the year.
The surprise announcement caused benchmark prices to jump by more than 6.2%, the largest single-day increase in nearly a year.
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International benchmark Brent crude was trading around $84.40 on Monday, a $4.60 jump from the previous day of trading, after rising as high as $86.44 per barrel earlier in the day.
West Texas Intermediate, meanwhile, saw prices of $80.27 per barrel — a similar jump of 6.1% from Friday.
The spike comes after OPEC+ said Sunday it would cut its oil production by an additional 1.15 million bpd on top of previous cuts it announced last year, putting the total volume reduction by about 3.36 million bpd, or around 3.7% of global demand.
Saudi Arabia’s energy minister described the cuts as a “precautionary measure” aimed at supporting oil market stability, following slightly weaker-than-expected demand during the first quarter of the year.
Oil prices fell briefly in March to around $70 per barrel, the lowest point in 15 months, amid fears of a banking crisis, though they quickly rebounded.
Some analysts warned Monday the cuts were an overreaction that could send oil prices soaring later this year, beyond the increase expected from demand tied to China’s economic reopening.
Rystad Energy analysts said Monday the cuts could put oil prices above $100 per barrel this summer, possibly as high as $110 for Brent, according to Reuters.
And Goldman Sachs increased its 2023 demand forecast by $5 on Monday, putting Brent prices at an estimated $95 per barrel by the end of the year.
The Biden administration said Sunday that move was not advisable given current market conditions.
“We don’t think cuts are advisable at this moment given market uncertainty — and we’ve made that clear,” a spokesperson for the National Security Council said.
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“We will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers,” the person added.
