Oil prices rose 6%, the biggest single-day gain in almost a year, after a surprise production cut by OPEC+ countries fueled concern about higher inflation and the potential impact on the Federal Reserve's efforts to tame high prices by raising interest rates.
OPEC+ countries, a collection of over 20 of the biggest oil producing countries in the world, agreed to cut supply by 1.66 million barrels per day starting in May. That includes Russia's move in February to reduce output by 500,000 barrels per day beginning in March, a change that may last until the end of the year.
The latest supply cut brings the total volume of output reductions to 3.66 million barrels, equivalent to 3.7% of global demand. OPEC+ previously agreed to reduce output by two million barrels per day in November, in an effort to shore up prices.
The price of West Texas Intermediate (WTI) crude—the U.S. benchmark—rose as high as $81 per barrel on Monday, while Brent crude—the benchmark for Europe—rose to $85 per barrel. Oil prices are a key component of the Consumer Price Index (CPI): Commodities and energy contributes 21.3% and 7.1% of the index, respectively.
Last year, in a bid to mitigate the impact of extremely high fuel prices, the Biden Administration sold oil from the U.S. Strategic Petroleum Reserve. It now finds itself forced to to replenish the depleted reserves.
WTI crude prices are up more than 20% over the past two weeks after falling to a 15-month low of $65 per barrel on March 20. They’ve since rebounded to the highest level in nearly a month.