After Saudi Arabia and other major producers pledged to reduce production, oil prices have risen more than 5%.

Brent crude oil, an international benchmark for oil, rose 5.5% to $84.28 per barrel at 9 AM on Monday. This was after it was announced that the production would be reduced by 1.15 Million barrels per day between May and December.

Although the price rises will not immediately reach the forecourts, they will eventually contribute to the problems facing many people in the UK during this cost of living crisis.

Central banks will face additional challenges trying to control inflation due to rising oil prices.

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As the Ukraine war rages on, there are concerns that higher oil prices could boost Vladimir Putin’s war bank.

While many countries have reduced their energy imports from Russia since the invasion of Ukraine, the International Energy Agency (IEA) still reports that Russia exports oil primarily to China and India.

Clifford Bennett, chief economist of ACY Securities, stated in a report that “This will create both politics across Europe and even greater general inflation in America, leading to renewed pressure for the Federal Reserve to continue hiking rates aggressively.”

Clearview Energy Partners LLC managing director Kevin Book said it could take up to a year for the cuts in effect.

“It’s big… You could have a very substantial price response”

He said that even though the production cuts account for a small percentage of world’s daily use, they could have a significant impact on the prices.

He said, “It’s an enormous deal because of how oil prices work.”

“You are in a market which is fairly balanced.

You can have a significant price response if you take away a small amount, depending on how much is being demanded.”

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Hargreaves Lansdown’s lead equity analyst Sophie Lund-Yates stated: “This development is a blow to inflation, with expectations that inflation will come down partly balancing out on the trajectory for the oil price.

“Markets know that central banks will need extend or increase their interest-rate hike cycles if there is more pressure. Expectations of this will need be repriced.”

“Stabilizing the Oil Market”

Saudi Energy Ministry stated that its cuts were a precautionary measure to stabilize the oil market.

Oman, Kuwait, Kuwait, Kazakhstan and Kazakhstan also announced cuts.

Alexander Novak, Russia’s deputy prime Minister, said that his country would continue a voluntary reduction of 500,000 barrels through the end of the current year. This is in addition to the February announcement.

All the countries are members of the OPEC+ Group, which also includes Russia and OPEC (Organisation of the Petroleum Exporting Countries).

OPEC has not commented.