Proactive Investors - BP PLC and Shell PLC sat top of the FTSE 100 risers after the surprise cut in oil production announced by members of Opec+.
The decision sent oil prices soaring with Brent crude trading 5.3% higher at US$84.10 while West Texas Intermediate is 4.9% to the good at US$79.43.
“It’s a shock move by Opec+ as the cartel had previously vowed to maintain a steady supply. This is a significant reduction in a market in which supply was expected to be tight for the second half of 2023,” said Nigel Green at deVere Group.
Saudi Arabia said it will implement a “voluntary cut” of 500,000 barrels per day (b/d), or just under 5% of its output, in “co-ordination with some other Opec and non-Opec countries”, in an attempt to boost prices amid fears of weaker demand.
Russia, also a member of Opec+, said it would extend its existing 500,000b/d production cut until the end of the year. Moscow’s reduction was first announced in March in retaliation for western countries’ moves to impose a price cap on its seaborne oil exports.
Shares in BP and Shell (LON:RDSa) rose 4.2% and 3.9% respectively.
Deutsche Bank said: “It will take some time to see exactly how much this impacts global prices as demand concerns linger, but this is another potential factor exerting upward pressure on inflation after largely being an ameliorating factor this year. “
Green added the decision could “prompt central banks to maintain interest rates higher for longer, due to the inflationary impact, which will hinder economic growth”.
The Opec+ group includes 13 Opec member countries, which are primarily located in the Middle East, and 10 non-Opec countries, including Russia, Mexico and Kazakhstan.