Share prices in BP and Shell rose in early trading after oil prices soared following a shock cut in global crude supply.
The OPEC consortium led by Saudi Arabia pledged to cut 1 million barrels of daily output starting next month. Brent crude rose 5% to $84 a barrel after the announcement, but Goldman Sachs said the risk was serious enough to reach $100 by the end of 2024.
BP and Shell jumped a further 4% as a result, with the FTSE 100 up 0.5% to a three-week high. The broader energy sector rose 4.3%, on track for its biggest daily gain in more than four months.
OPEC’s decision to cut output by more than 1 million barrels a day shocked markets, with economists warning that the oil surge threatened to open a new front in the battle against inflation. Saudi Arabia pledged to cut just 500,000 barrels a day.
The White House said the pledge to cut production was ill-advised, while adding that the US would work with producers and consumers to focus on gasoline prices. Last year, President Joe Biden ordered an unprecedented release of the country’s strategic crude oil reserves following Russia’s invasion of Ukraine.
“Today’s move, like October’s cut, can be read as another clear signal that Saudi Arabia and its OPEC partners will seek to short-circuit further macroeconomic selling,” RBC analysts said.
Rising oil prices will further challenge Western efforts to control inflation. “This is another potential factor putting upward pressure on inflation,” Deutsche Bank analysts said.
