The price of Oman crude surged more than 8.4 per cent on Monday to $84.11 per barrel as the Organisation of the Petroleum Exporting Countries and their allies (Opec+), including the Sultanate of Oman, on Sunday announced voluntary cuts to their production totalling about 1.16 million barrels per day in a surprise move aimed at supporting market stability.
The pledges bring the total volume of cuts by Opec+ to 3.66 million barrels per day or equal to 3.7% of the global demand. The move is a precautionary measure taken on top of the previous output cut agreed during the Oct 5, 2022 Opec and non-Opec ministerial meeting held in Vienna, Austria.
The Sultanate of Oman will embark on a voluntary cut of its crude production by 40,000 barrels per day starting from May until December 2023.
According to data from the Dubai Mercantile Exchange (DME), the price of Oman crude on Monday rose by $6.52 to close at $84.11 per barrel, the highest level since March 6, 2023.
The average monthly price for Oman crude oil futures contract for April 2023 is 82.23 per barrel, an increase of 1.61 per cent or $ 1.31 per barrel compared to March 2023 delivery which amounted to $80.92 per barrel.
Meanwhile, international oil prices also surged on Monday, 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.
US West Texas Intermediate crude was at $79.84 a barrel, up $4.17, or 5.5%, after earlier hitting the highest level since late January.
The Organisation of the Petroleum Exporting Countries and their allies shook markets by announcing further production cuts of about 1.16 million barrels per day (bpd) on Sunday.
The Opec+ been expected to maintain its earlier decision to cut output by 2 million bpd until December at its monthly meeting on Monday.
As a result, Goldman Sachs lowered its end-2023 production forecast for Opec+ by 1.1 million bpd 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 a barrel, 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. (With inputs from Reuters)
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