Oil Prices Rise Above $85, OPEC+ Further Reduces Supply

Oil prices surged on Monday in international markets above $85, driven by the announcement from leading producers that they would reduce supply more than previously planned to stabilize prices shaken by fears of recession.

In the London market, the price of a barrel was $5.31 higher than at the close of trading at the end of last week, amounting to $85.20. In the U.S. market, barrels were traded at a price $5.10 higher, at $80.77.

OPEC+ rattled the markets with a Sunday announcement that it would reduce production by an additional 1.16 million barrels per day from May to December, on top of the previous two million barrels per day until November.

This would reduce their production by a total of 3.66 million barrels per day, which corresponds to 3.7 percent of global demand, according to Reuters’ calculations.

The cabinet of U.S. President Joe Biden stated that it would not advise the group to take such a move ‘at this moment,’ according to a spokesperson for the National Security Council.

The price of a barrel in London plummeted to around $70 in March due to fears that the global banking crisis and rising interest rates would hit demand and neutralize the impact of reduced OPEC production due to the suspension of exports from Iraqi Kurdistan.

Analysts believe that the problems in the banking sector prompted OPEC+ to intervene in production again.

– We are witnessing an adaptable and agile OPEC+ that can and wants to preempt events. Recent market turmoil and the drop in the price of a barrel to $70 likely scared them a bit – said Bjarne Schieldrop from SEB.

– They will not tolerate such a thing – concludes Schieldrop, speculating that the group was likely concerned about rising interest rates in Western countries and the situation in the global banking system.

The decision signals that OPEC+ is ready to take measures to eliminate the threat posed by potential economic problems, adds Jorge Leon from Rystad Energy.

– The reduction may signal OPEC+’s assessment that enough recession indicators have appeared in the market… (and) that they will further reduce supply by the end of the year, which could push the price of a barrel above $100 – commented Leon.

OPEC separately announced that on Friday, the price of the basket of oil from its members rose by 59 cents to $78.12.