SINGAPORE (Reuters) – Oil prices jumped more than $5 a barrel on Monday’s open, jolted by a surprise announcement by OPEC+ to cut production further in an effort to support market stability.
Brent crude hit the highest in nearly a month at the open, trading at $85.56 a barrel by 2249 GMT, up $5.67, or 7.1%.
U.S. West Texas Intermediate crude touched its highest since late January and was at $81.08 a barrel, up $5.41, or 7.2%.
The Organization of the Petroleum Exporting Countries and their allies including Russia, shook markets by announcing production cuts of about 1.16 million barrels per day on Sunday. The group known as OPEC+ had been expected to maintain its earlier decision to cut output by 2 million bpd until December.
The pledges bring the total volume of cuts by OPEC+ to 3.66 million bpd according to Reuters calculations, equal to 3.7% of global demand.
As a result, Goldman Sachs lowered its end-2023 production forecast for OPEC+ by 1.1 million bpd and raised their Brent price forecasts to $95 and $100 a barrel in 2023 and 2024, respectively, its analysts said in a note.
“Today’s surprise cut is consistent with the new OPEC+ doctrine to act pre-emptively because they can without significant losses in market share,” the bank said.
“While surprising, this cut reflects important economic and likely political considerations.”
Goldman estimated the output reduction could provide a 7% boost to oil prices, contributing to higher Saudi and OPEC+ oil revenues.
The Biden administration said it saw the move announced by the producers as unwise.