Crude oil prices jumped after Saudi Arabia announced a surprise output cut at the OPEC+ meeting Tuesday.
After a two-day meeting, Saudi Arabia shocked oil markets with a voluntary 1-million-barrel-per-day output cut. The announcement came after the Organization of the Petroleum Exporting Countries along with Russia and other top nonproducers, together known as OPEC+, agreed to allow a 75,000 bpd combined increase from Russia and Kazakhstan in February and March.
“We do that willingly and we do that with the purpose of supporting our economy, the economies of our colleagues,” Saudi energy minister Prince Abdulaziz Bin Salman said during the press conference.
Russia’s deputy prime minister and energy minister, Alexander Novak, called the Saudi Arabia production cut “a great New Year present for the whole oil industry.”
Crude Oil Prices Jump
Crude oil prices rose sharply Tuesday on the surprise Saudi oil production cut, as well as Iran’s seizure of a South Korean tanker. Brent jumped 4.9% to $53.60 per barrel. U.S. crude climbed 4.9% to $49.93 after briefly topping $50.
OPEC+ agreed in December to ease its crude oil output cuts by 500,000 barrels per day starting in January, bringing the total cut to 7.2 million bpd. The group planned to meet each month to determine if and by how much production should be increased. But since Tuesday’s decision will carry over through March, the next OPEC+ meeting will be held on March 4 to hammer out a decision for April.
Crude Demand Uncertainty As Covid-19 Cases Rise
Oil markets still face uncertainty even with the distribution of Covid-19 vaccines. A new highly contagious virus strain has swept through the U.K. leading to more lockdowns in the U.K. and EU, with the mutation already found in the U.S. and many other countries. U.S. hospitalizations are at a record high.
At the same time, OPEC+ needs to find a delicate balance with U.S. shale producers. Many OPEC+ members depend on higher crude oil prices to support government spending plans. But higher oil prices also help U.S. producers turn a profit and expand production.
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