Oil prices jump, as OPEC cut draws US concern

Oil prices surged on Monday and US officials voiced their displeasure a day after OPEC members announced substantial cuts in production, a move that reaffirmed Saudi Arabia, the group’s leader, as a headstrong giant in the oil market.

Traders bid up crude prices after the news of cuts totaling more than 1.1 million barrels a day, or 1 per cent of global production, beginning next month. Brent crude, the international bench mark, rose about 6 per cent, to about $84.50 a barrel. West Texas Intermediate crude, the US standard, was up by a similar amount, trading over $80 a barrel.

Sunday’s surprise announcement signaled a potential new threat to global efforts to curb inflation and a challenge to the Biden administration, which has pushed for lower gasoline prices.

“We don’t think that the production cuts are advisable at this moment, given the market uncertainty. And we made that clear,” said John F. Kirby, a spokesperson for the National Security Council. “But we also don’t have a seat at that table.”

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The move could further aggravate strained relations between the United States and Saudi Arabia. Last year, President Joe Biden made a special appeal to Saudi Crown Prince Mohammed bin Salman in Riyadh to increase oil production, only to have OPEC, or the Organization of the Petroleum Exporting Countries, trim its output at its next meeting.

A statement released by OPEC on Monday described the “voluntary production adjustments” as a “precautionary measure aimed at supporting the stability of the oil market.”

Saudi Arabia, OPEC’s top oil producer, said it would cut by far the most, reducing by 500,000 barrels a day, followed by Iraq (211,000 barrels), United Arab Emirates (144,000 barrels) and five other countries.

The abrupt move showed that Saudi Arabia is determined to be proactive to keep prices high, perhaps in the range of $90 a barrel, some analysts said.

It may prove difficult, though, to prop up prices if demand for oil is sinking. Monday’s jolt “could be followed by realization that the market is a lot weaker than people think,” wrote Edward Morse, head of commodities at Citigroup.