Cancel your summer road trip.
Oil prices jumped on Sunday and gas will likely climb as well in the coming months since Saudi Arabia and other major oil producers announced a surprise cut in oil production.
The Associated Press reports that on Sunday, April 2nd, Saudi Arabia and other major oil producers publicized cuts totaling up to 1.15 million barrels per day (bpd) starting in May and lasting until the end of the year.
According to Reuters, this increases the total of recent cuts by the OPEC+ group, which includes Russia, to 3.66 million bpd and accounts for 3.7% of global demand. OPEC countries made their last cuts in October 2022, and Russia announced cuts of 500,000 bpd in February after the West introduced price caps. Moscow also said on Sunday that it was voluntarily maintaining the cutback until the end of the year.
Following the announcement, oil prices immediately jumped, climbing by 8% initially, as reported by the Financial Times, before falling back slightly.
A source also told Reuters that not all OPEC+ members were joining in the cuts because some members are already suffering a lack of production capacity that keeps them pumping below agreed-upon levels. The largest share of production cuts, 500,000 bpd, are being made by Saudi Arabia.
The move came as a surprise because not only were production cuts not expected but they were announced the day before the group’s monthly meeting, scheduled for Monday, April 3rd.
Oil prices dropped significantly in March when the price of crude dipped to close to 70 USD per barrel, a 15-month low, before recovering to approximately 80 USD a barrel, according to Reuters. The drop also coincided with the collapse of Silicon Valley Bank and the near-collapse of Credit Suisse.
“OPEC is taking pre-emptive steps in case of any possible demand reduction,” Energy Aspects’ director of research, Amrita Sen, told Reuters.
Predictably, the U.S. criticized the curb in production, saying that it wasn’t wise to make cuts given the current market uncertainty and fears of higher gas prices for its citizens.
