Major oil exporters surprised the market with their announcement to cut production, causing oil prices to surge by over 5%, with Brent crude oil trading above $84 a barrel.

Saudi Arabia, Iraq, and various Gulf states have committed to decreasing output by more than one million barrels per day, while Russia has extended its own cut of half a million barrels per day until the end of the year.

This move has led to increases in share prices for BP and Shell, both rising by over 4%.

Despite the US calling for producers to increase output to lower energy prices, the surge in oil prices could make it harder to bring down inflation.

However, it is not necessarily the case that household energy bills will rise due to the increase in oil prices.

“The energy price cap, that households benefit from, has already been determined using earlier market expectations,” she said. “Plus, when you look at energy use in households, it tends to be more gas-heavy rather than oil.”

The biggest impact will be on transport costs, she said, as we could see a rise in the price of fuel. “And that could feed into other costs, meaning inflation takes longer to come down.”

The Opec+ oil producers, which account for approximately 40% of global crude oil output, have announced cuts in production.

Saudi Arabia is reducing output by 500,000 barrels per day, with Iraq reducing output by 211,000. The UAE, Kuwait, Algeria, and Oman are also cutting production.

A Saudi energy ministry official stated that this was a “precautionary measure aimed at supporting the stability of the oil market.”

In response to the cuts, the US National Security Council expressed its opinion that reductions are not advisable due to market uncertainty.

According to independent oil analyst Nathan Piper, Opec+’s move appears to be an effort to keep the oil price above $80 a barrel in the medium term, given the possibility of weakened global demand and limited impact of sanctions on Russian oil supplies.

The unexpected announcement has significant implications for several reasons.

Despite fluctuations in oil prices in recent months, there were concerns that global demand for oil would surpass supply, particularly towards the end of the year. The increase in oil prices after Sunday’s announcement could potentially exacerbate the cost-of-living crisis, putting more pressure on inflation and increasing the risk of recession.

Interestingly, this announcement was made just a day before the Opec+ meeting. There were indications from members that they would stick to the same production policy, indicating that there would be no further cuts, which is why it came as a surprise. It is possible that more members of the group may announce voluntary cuts, further reducing supplies.

The move is also expected to worsen the already strained relations between the US and Opec+, led by Saudi Arabia. The White House had urged the group to increase supplies to cool down prices and check Russian finances.

However, the announcement on Sunday also highlights the close cooperation between oil-producing countries and Russia.

The surprise announcement has significant implications for various reasons.

Although oil prices have fluctuated in recent months, there were concerns that global oil demand would exceed supply, especially towards the end of the year. The surge in oil prices following Sunday’s announcement could intensify the cost-of-living crisis, adding more pressure on inflation and increasing the possibility of a recession.

Interestingly, the announcement was made a day before the Opec+ meeting, and there were indications that members would maintain the same production policy, suggesting no further cuts, which is why it was unexpected. More members of the group may declare voluntary cuts, further reducing supplies.

Furthermore, the move is expected to worsen the already strained relationship between the US and Opec+, led by Saudi Arabia. The White House had requested the group to increase supplies to lower prices and check Russian finances.

However, Sunday’s announcement also emphasizes the close collaboration between oil-producing countries and Russia.