Oil prices soar as Saudi-led OPEC+ announces surprise cut in production

Oil prices soared almost six percent on Monday morning after major producers led by Saudi Arabia announced a surprise cut of more than one million barrels per day.

The West Texas Intermediate contract jumped 5.74 percent to $80.01 a barrel, while Brent jumped 5.67 percent to $84.42.

The move by Saudi Arabia, Iraq, UAE, Kuwait, Algeria and Oman will be in effect from next month until the end of the year, and marks the biggest reduction in output since the OPEC+ cartel slashed two million barrels per day in October.

The reduction came on top of a Russian decision to extend a cut of 500,000 barrels per day and in spite of US calls to increase production.

The announcement will fan fresh fears about inflation and put more pressure on central banks to hike interest rates further.

Market "sentiment is likely to take a knock... as higher levels of expected inflation assumes higher (for longer) interest rates", said Matt Simpson at City Index.

"And stocks likely won't appreciate this development, so we could be in for a rocky start to the week."

"A higher oil price is obviously good for energy producers, and the suggestion that it could lead to higher interest rates is good news for banks, as higher rates make it easier for them to make money," said Stuart Cole, head macro economist at Equiti Capital.

"But elsewhere, it is not such great news, as a tighter monetary policy will drag on demand, potentially curtailing spending."