Oil prices surged on Monday and U.S. officials voiced their displeasure a day after OPEC members announced substantial cuts in production, a move that reaffirmed Saudi Arabia, the group’s leader, as a headstrong giant in the oil market.
Traders bid up crude prices after the news of cuts totaling more than 1.1 million barrels a day, or 1 percent of global production, beginning next month. Brent crude, the international benchmark, rose about 6 percent, to about $84.50 a barrel. West Texas Intermediate crude, the U.S. standard, was up by a similar amount, trading over $80 a barrel.
Sunday’s surprise announcement signaled a potential new threat to global efforts to curb inflation and a challenge to the Biden administration, which has pushed for lower gasoline prices.
“We don’t think that the production cuts are advisable at this moment, given the market uncertainty. And we made that clear,” said John F. Kirby, a spokesman for the National Security Council. “But we also don’t have a seat at that table.”
The move could further aggravate strained relations between the United States and Saudi Arabia. Last year, President Biden made a special appeal to Saudi Crown Prince Mohammed bin Salman in Riyadh to increase oil production, only to have OPEC, or the Organization of the Petroleum Exporting Counties, trim its output at its next meeting.
A statement released by OPEC on Monday described the “voluntary production adjustments” as a “precautionary measure aimed at supporting the stability of the oil market.”
Saudi Arabia, OPEC’s top oil producer, said it would cut by far the most, reducing by 500,000 barrels a day, followed by Iraq (211,000 barrels), United Arab Emirates (144,000 barrels) and five other countries.
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
The abrupt move showed that Saudi Arabia is determined to be proactive to keep prices high, perhaps in the range of $90 a barrel, some analysts said.
“This is a new Saudi style of unpredictable maneuver,” said Karen Young, a senior fellow at the Columbia University Center on Global Energy Policy. In recent days, Saudi oil officials had signaled that current production levels would be maintained through the end of the year.
It may prove difficult, though, to prop up prices if demand for oil is sinking. Monday’s jolt “could be followed by realization that the market is a lot weaker than people think,” wrote Edward Morse, head of commodities at Citigroup.
Uncertainties hang over the global economy. It is not clear how quickly China, the largest oil importer and Saudi Arabia’s most important customer, will recover from its “zero Covid” lockdowns. Also hard to gauge is the extent of economic damage done to oil demand by the recent turmoil in the banking industry. And higher prices will encourage more investment and production from other producers, like shale oil drillers in the United States.
In the United States, gasoline prices have been creeping higher in recent weeks.
By moving now, the Saudis are signaling that they prefer to act rather than wait and see how these trends play out, some analysts said.
“This is probably not their last production move of the year,” Mr. Morse said.
OPEC Plus, made up of OPEC, Russia and some others, produces roughly half of the world’s oil. In February, Russia declared it would cut production by 500,000 barrels a day, a response to Western sanctions that have shaken up demand for its oil.
Overall, the group had not been scheduled to hold a formal oil ministers’ meeting until June, but the Saudis apparently decided that action was needed. Prices have been weak recently, although they recovered slightly in recent days as banking problems appeared to ease. A dispute between Iraq and Kurdistan disrupted some oil supplies last week, but a potential settlement was announced over the weekend.
The sight of prices dipping toward $70 a barrel in mid-March was probably unsettling for the Saudis and, analysts say, they may have resolved to act before more bad news propelled the markets down further. Saudi Arabia needs high oil revenues to support ambitious development schemes aimed at diversifying the kingdom’s economy away from oil.
Some analysts say the Saudis had little choice but to act.
“This move by OPEC Plus looks to restore its credibility as being a proactive, pre-emptive force,” said Gary Ross, chief executive of Black Gold Investors, a trading firm.
What’s clear is that the Saudis are likely to make moves that they decide are in their interest even if their decisions irritate the Biden administration and complicate the U.S. Federal Reserve’s efforts to ease inflation.
Relations between Washington and Riyadh have been complicated further by China’s growing presence in the region, including its role as mediator in a recent series of secret talks that led to a rapprochement between Saudi Arabia and Iran.
On Monday, Mr. Kirby, the National Security Council spokesman, cautioned against reading too much into the latest disagreement.
“Saudi Arabia is still a strategic partner, as they have been for 80 years,” he said. “We don’t always see eye to eye on everything, but on many things that are of mutual concern to us, we are finding ways to work together,” he said, noting efforts to extend the cease-fire in Yemen.
But Helima Croft, an analyst at RBC Capital Markets, noted a difference in attitude in Riyadh.
“It has been apparent that Saudi Arabia is prepared to endure increased friction in the bilateral relationship” with Washington, she wrote in a note to clients.
Ms. Croft said the Saudis now view Washington as “just one of several partners” rather than their most important ally, as in the past.
Julian E. Barnes contributed reporting.
