Oil prices skyrocketed after OPEC+ announced a surprise production cut of more than one million barrels a day.
The OPEC+ group of countries, which includes some of the biggest oil producers, Saudi Arabia, Iraq and Russia, explained that “this is a precautionary measure aimed at supporting the stability of the oil market”.
However, experts have warned that the move may further strain relationships with western countries as they struggle to handle rising inflation.
According to a statement by the International Energy Agency (IEA), the recent announcement by OPEC+ countries to implement significant cuts in oil production comes amid growing uncertainty for global oil markets and concerns about the state of the world economy.
The IEA, along with other institutions that represent both consumers and producers, have all forecasted that global oil markets were already poised to tighten in the latter half of 2023, with the possibility of a sizeable supply deficit emerging.
However, the new cuts by OPEC+ may worsen these tensions and lead to an increase in oil prices at a time when vulnerable consumers across the globe, particularly those in developing and emerging economies, are already facing inflationary pressures, the IEA has said.
Walid Koudmani, Chief Market Analyst at the online investment platform XTB said: “This reduction in supply amounts to over 1% of global output and caused oil prices to increase by more than 5%, with Brent trading around $84 (£67.8) and WTI hovering just below the $80 (£64.6) mark.
“However, these cuts may suggest that OPEC has concerns about demand outlook, which could impact oil prices in the long-term and may prove to be an important factor in the longer term price trends.”