The price of oil has increased by more than 5 percent after major oil producers like Saudi Arabia vowed to cut production. The international oil benchmark, Brent crude, was up 5.5 percent on Monday (April 3) to $84.28 per barrel as production will be cut by 1.15 million barrels a day from May and throughout the rest of the year.
While it might take a while for the increased oil price to reflect on UK petrol stations, many will eventually face even higher fuel costs in addition to the already high cost of living. The rise in oil prices will also prove a challenge for central banks in their job to keep inflation in check.
The increased costs could also prove beneficial for Vladimir Putin and Russia’s invasion of Ukraine. While many countries have reduced their energy imports from Russia, the International Energy Agency (IEA) has said that the country is still exporting a lot of oil, especially to India and China.
"This will create both political waves across Europe and even higher general inflation in the USA, leading to renewed pressure on the Federal Reserve to keep hiking rates aggressively,” said Clifford Bennett, chief economist at ACY Securities, in a report.
A spokesperson for the UN National Security Council warned about the timing of the cuts: "We don’t think cuts are advisable at this moment given market uncertainty - and we’ve made that clear."
The cut in oil production is being made by members of the Opec+, which accounts for around 40 percent of all the crude oil produced in the world. Opec+ includes countries such as Saudi Arabia, Kuwait, the UAE, and Oman.
But for those worrying about a more expensive forecourt visit, Kevin Book, managing director of Clearview Energy Partners LLC, said it could take up to a year before prices increase as a result of the cuts. He also added that while the cuts may be small compared to the daily usage of oil, the price impact could be big.
"It’s a big deal because of the way oil prices work," he told Sky News. "You are in a market that is relatively balanced. You take a small amount away, depending on what demand does, you could have a very significant price response."