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Oil prices hit 14-month high as OPEC maintains April supply cuts

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LaToya Harding
·Contributor
·2-min read
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A drilling platform is seen near Breton Island, Louisiana May 3, 2010. Energy giant BP Plc was under siege on Monday over the catastrophic oil spill from its ruptured Gulf of Mexico well, as its shares fell and the U.S. government pressed it to try to limit a major environmental disaster. As a huge oil slick advanced toward the Gulf Coast shoreline, the London-based company came under increasing pressure to do more to stop, or at least control, what is fast turning into the worst oil spillage in U.S. history. REUTERS/Carlos Barria (UNITED STATES - Tags: DISASTER ENERGY ENVIRONMENT BUSINESS)
An increase of 500,000 barrels a day was widely expected, however, Saudi Arabia agreed to maintain a voluntary 1 million barrels per day cut despite calls from some smaller producers to allow a modest loosening. Photo: REUTERS/Carlos Barria

Oil prices climbed to their highest level in nearly 14 months on Friday after the Organisation of Petroleum Exporting Countries (OPEC) and its allies agreed to mostly maintain their supply cuts for April.

Brent crude (BZ=F) rose to as much as $68 a barrel, a level not seen since 8 January, while US crude hit $64.80 a barrel.

An increase of 500,000 barrels a day was widely expected, however, Saudi Arabia agreed to maintain a voluntary 1 million barrels per day cut despite calls from some smaller producers to allow a modest loosening.

Brent crude prices, 5-day chart. Chart: Yahoo Finance
Brent crude prices, 5-day chart. Chart: Yahoo Finance

“This raises the very real prospect that the Saudis, in particular who favour longer curbs, could overplay their hand, and thus risking an element of demand destruction,” said Michael Hewson of CMC Markets.

“The surge in prices could also speed up the transition towards renewables if the price rises much above $70 a barrel for an extended period. It’s a bit of a gamble on the part of the Saudis, as they could hasten their own demise in a faster move towards renewables, as well as risking the strength of any post pandemic recovery.”

READ MORE: European stock markets continue to tumble amid fears of rising interest rates

Russia was allowed a 130,000 barrel a day increase in quota and Kazakhstan 20,000.

The group is awaiting a more solid recovery in demand from the coronavirus pandemic despite a recent rally in oil prices in the past two months.

Saudi’s oil minister Prince Abdulaziz bin Salman, acknowledged that the market had improved since January, but wanted to “urge caution and vigilance,” adding that “…before we take our next step forward, let us be certain that the glimmer we see ahead is not the headlight of an oncoming express train.”

Oil prices are ahead by around 30% year to date, which has in turn propelled the share prices of important FTSE 100 constituents BP (BP.L) and Shell (RDSB.L) by 23% and 16%, respectively.

Goldman Sachs has raised its forecast for Brent crude by $5 to $75 per barrel in the second quarter and $80 in the third quarter.

The next OPEC+ meeting is on 1 April.

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