Oil prices have surged after several of the world’s largest exporters announced surprise cuts in production.
The price of Brent crude oil is trading above $84 a barrel after jumping by almost 6%.
Economists warned that higher oil prices could make it harder to bring down the cost of living.
But the RAC motoring group said it does not expect petrol prices to rise unless the higher oil price is sustained over several days.
Brent crude prices rose after Saudi Arabia, Iraq and several Gulf states said on Sunday they were cutting output by more than one million barrels of oil a day.
In addition, Russia said it will extend its cut of half a million barrels per day until the end of the year.
Energy giants BP and Shell saw their share prices rise on Monday, with both rising more than 4%.
Oil prices soared when Russia invaded Ukraine, but are now back at levels seen before the conflict began.
However, the US has been calling for producers to increase output in order to push energy prices lower. A spokesperson for the US National Security Council said: “We don’t think cuts are advisable at this moment given market uncertainty – and we’ve made that clear.”
High energy and fuel prices have helped to drive up inflation – the rate at which prices rise – putting pressure on many households’ finances.
Yael Selfin, chief economist at KPMG, warned that the oil price surge could make the battle to bring down inflation harder.
However, she said that rising oil prices won’t necessarily lead to higher household energy bills.
“The energy price cap, that households benefit from, has already been determined using earlier market expectations,” she said. “Plus, when you look at energy use in households, it tends to be more gas-heavy rather than oil.”
There have also been fears that there could be an impact on transport costs, if fuel prices rise.
The RAC said it does not expect this to happen in the short-term.
“Any sudden increase in the cost of oil shouldn’t result in a rise in the UK average price of petrol for a fortnight, unless of course the barrel price stays higher for several days,” RAC fuel spokesman Simon Williams told the BBC.
The reduction in output is being made by members of the Opec+ oil producers. The group accounts for about 40% of all the world’s crude oil output.
Saudi Arabia is reducing output by 500,000 barrels per day and Iraq by 211,000. The UAE, Kuwait, Algeria and Oman are also making cuts.
A Saudi energy ministry official said the move was “a precautionary measure aimed at supporting the stability of the oil market”, the official Saudi Press Agency said.
Nathan Piper, an independent oil analyst, told the BBC the move by Opec+ appeared to be an attempt to keep the oil price above $80 a barrel in the medium term, given that demand could be hit by a weakening global economy and sanctions have had a “limited impact” on restricting Russian oil supplies.
This surprise announcement is significant for several reasons.
Despite price fluctuations in recent months, there were concerns that global demand for oil would outstrip supply, especially towards the end of the year. The increase in oil prices following Sunday’s announcement could potentially put more pressure on inflation – worsening the cost-of-living crisis and raising the risk of recession.
Interestingly, this announcement came just a day before the Opec+ meeting. There were indications from members that they would stick to the same production policy, meaning there would be no fresh cuts, which is why it has come as a huge surprise.
The development will also likely further strain ties between the US and Saudi Arabia-led Opec+. The White House had called on the group to increase supplies to cool down prices and check Russian finances.
However, Sunday’s announcement also underlines the close cooperation between oil-producing countries and Russia.
The latest reductions come on top of a cut announced by Opec+ in October last year of two million barrels per day (bpd).
However, last year’s cut came despite calls from the US and other countries for oil producers to pump more crude.
When the Opec+ group announced its production cuts in October, US President Joe Biden said he was “disappointed by the short-sighted decision”.