Oil prices surged on April 3, posting the biggest daily rise in nearly a year, after a surprise announcement by OPEC+ to cut more production jolted markets.

Brent crude was trading at $84.22 a barrel by 0900 GMT, up $4.33, or 5.4%, after touching the highest in a month at $86.44 earlier in the session.

U.S. WTI crude was at $79.84 a barrel, up $4.17, or 5.5%, after earlier hitting the highest level since late January.

OPEC and their allies including Russia shook markets by announcing further production cuts of about 1.16 million barrels per day (bpd) on April 2.

The group, known as OPEC+, had been expected to maintain its earlier decision to cut output by 2 million bpd until December at its monthly meeting on Monday.

The pledges bring the total volume of cuts by OPEC+ to 3.66 million bbl/d (MMbbl/d) 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 MMbbl/d and raised its Brent price forecasts to $95 and $100 a barrel for 2023 and 2024, respectively, it said in a note.

The Biden administration said the move announced by the producers was unadvisable and some analysts questioned OPEC+'s rationale for the extra production cut.

"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," said Vandana Hari, founder of oil market analysis provider Vanda Insights.

The decision may mean OPEC+ still sees economic storm clouds on the horizon, Jorge Leon, senior vice president at consultancy Rystad Energy, said.

"These cuts may be signaling that OPEC+ believes that there are enough recessionary indicators in the market ... (and) will further tighten the oil market for the rest of the year and could push prices above $100 per barrel".

Brent fell last month towards $70/ bll, the lowest in 15 months, on concerns that a global banking crisis and rising interest rates would hit demand despite lower OPEC oil output in March due to a halt in some of Iraq's exports.

Kremlin weighs in

The Kremlin said on April 3 that it was in the interests of the world energy industry to support prices for oil and oil products, a day after Russia announced it would extend a 500,000 bbl/d output cut until the end of the year.

Asked about the U.S. criticism, Kremlin spokesman Dmitry Peskov told reporters: "In this case, it is in the interests of world energy to maintain world prices for oil and oil products at the proper level. This is what you need to focus on. And whether other countries are satisfied or dissatisfied - that's their own business."

Peskov said it was important to maintain prices at a certain level because the sector was investment-intensive and because for the foreseeable future it was not possible to meet all countries' needs from renewable sources.

Asked if Russia had coordinated its actions with OPEC+, he said: "Russia is in constant contact with a number of OPEC+ states, this is a normal process, but nothing more. In this case, the countries have an independent line, an independent interest in stabilizing the market."

Comments