Oil prices and futures prices rose sharply in the early hours of Monday as markets re-opened for business in Oceania and Asia, responding to Sunday's surprise announcement by Saudi Arabia, Iraq and other Gulf states that they would reduce oil production further than previously planned.

Both the benchmark oil prices rose. Further movement is possible as markets in Europe and the US open for business on Monday.

Brent Crude oil reported a jump of over 6%, rising $5.16 (roughly €4.78) to $85.05 per barrel. The US West Texas Crude index climbed $4.88, to $80.55.

The Organization of Petroleum Exporting Countries (OPEC) called the production cut a "precautionary" move aimed at stabilizing the market.

Implications of the oil production cut

From May to the end of the year, the production cuts will total more than a million barrels per day — the biggest reduction sinceOPEC slashed two million barrels a day in October.

OPEC+ accounts for over 40% of the world's crude oil production.

For oil-importing countries, particularly less wealthy ones, rising oil prices can have severe knock-on financial effects.

Given that they're unlikely to be able to cut consumption drastically, they will be facing rising prices per barrel for the commodity, and probably paying the increase in US dollars rather than their own currency.

OPEC said in its forecast that in 2023 the world oil demand would grow by 2.3 million barrels a day to an average of 101.87 barrels per day.

Strain on US-Saudi relationship

Russia, a member of the group, said that it would be extending voluntary cuts of 500,000 barrels per day.

Higher oil prices will help Russian President Vladimir Putin as his country wages a war on Ukraine. Russia has also lost several formerly important export markets, particularly in the EU, to sanctions on oil imports since invading Ukraine, meaning its trading partners are more limited and it can't sell as much.

The US has been asking Saudi Arabia and other allies to increase production as it tries to bring down prices and squeeze Russia's finances, but to no avail.

Saudi Arabia, as OPEC's largest producer, announced the biggest cut at 500,000 barrels a day. This represents less than 5% of Saudi's average production of 11.5 million barrels a day in 2022.

Among the OPEC countries Iraq said that it would reduce production by 211,000 barrels each day and the UAE by 144,000, Kuwait by 128,000, Kazakhstan by 78,000, Algeria by 48,000 and Oman by 40,000 barrels a day.

Back in October, the cuts were announced on the eve of the US midterm elections during which time soaring prices was a major issue. President Biden had said that there would be "consequences."

Some Democratic lawmakers even demanded a freeze on cooperation with Saudi Arabia, a major US trading partner.