Global crude oil prices have surged by $5 per barrel as Saudi Arabia and other OPEC+ oil producers announced a decision to further cut oil production as ‘a precautionary measure’ to support stability in the global market.

On 2 April 2023, the Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, jointly known as OPEC+, announced production cuts of about 1.16 million barrels per day (mbpd).

Brent futures rose $4.37, or 5.5% a barrel, to settle at $84.26 at 03:47GMT, reported Reuters.

The US West Texas Intermediate futures increased $4.23, or 5.6%, to reach $79.90 per barrel.

The latest move comes on top of the existing OPEC+’s commitment to reduce 2mbpd of production until the end of this year.

The decision brings OPEC+’s total volume cut to 3.66mbpd. This equates to 3.7% of global demand, according to Reuters calculations.

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By GlobalData

As a result, Goldman Sachs lowered its end-2023 production forecast for OPEC+ by 1.1mbpd and raised its Brent price forecasts to $95 and $100 a barrel for 2023 and 2024, respectively, its analysts said in a note.

According to Goldman Sachs estimates, the reduction in oil output could provide a 7% boost to global oil prices. This will contribute to higher oil revenues for Saudi and OPEC+.

Oil market analysis provider Vanda Insights founder Vandana Hari said: “It’s hard to buy the ‘pre-emptive’ and ‘precautionary’ reasoning – especially now, when the banking crisis had tailed off and Brent had crawled back up towards $80 from its 15-month lows earlier in March.”

The US Government termed the latest decision by the OPEC+ oil producers as ‘unwise’.

RBC Capital analyst Helima Croft said: “Today’s move, like the October cut, can be read as another clear signal that Saudi Arabia and its OPEC+ partners will seek to short circuit further macro sell-offs and that Jay (Jerome) Powell is not the only central banker that matters.

“The bottom line is Washington and Riyadh simply have different price targets for their key policy initiatives.”

Last month, crude oil prices dropped towards $70 a barrel, hitting their lowest level in 15 months. This was due to concerns about oil demand because of a global banking crisis and surging interest rates.