Oil prices surge as OPEC and its allies extend production cuts

London(CNN Business) A group of major oil producers has agreed to extend production cuts for another month despite a recent price surge, choosing to limit supply until the global economic recovery is more firmly established.

The Organization of the Petroleum Exporting Countries (OPEC) and allied producers said on Thursday that they would largely roll over production cuts during the month of April. Two countries — Russia and Kazakhstan — were granted exemptions to increase their output by a small amount.

The OPEC+ group agreed in January to keep production steady for February and March. At that time, Saudi Arabia surprised markets by pledging to cut its production by an extra 1 million barrels per day, a move that reflected unease about fragile demand. Saudi Arabia agreed on Thursday to extend its extra cut through April.

In recent months, rising prices have made producers more confident that production cuts have put the market on a solid footing following their pandemic crash. But the group choose to play it safe on Thursday. Its supply cut amounts to nearly 8 million barrels per day, including the extra Saudi contribution.

At a press conference, Saudi energy minister Abdulaziz Bin Salman said the "jury is still out" on the future of the oil market. "When you have this unpredictability and uncertainty, I think there are choices you could make. I belong to the school of being conservative and taking things in a more precautionary way. I will believe in [the market recovery], when I see it," he said.

Last year, OPEC+ slashed output by a record-shattering 9.7 million barrels per day. The emergency steps, along with production cuts by US and other producers, drove a strong rebound in prices. That recovery has accelerated in recent months as millions of people around the world have been vaccinated against Covid, allowing restrictions to be slowly eased.

Crude futures have now recovered all the ground lost during the early months of the pandemic. Brent crude, the global benchmark, increased by more than 5% to $67.55 on Thursday. US oil prices were above $64.50, a far cry from the depths reached last April when oil crashed below zero for the first time in history.

The International Energy Agency expects world oil demand to grow by 5.4 million barrels per day in 2021 to reach 96.4 million barrels per day, recovering around 60% of the volume lost to the pandemic. Demand will surge in the second half of this year as more vaccines are administered, the group said last month.

Still, there are concerns about the pace of vaccine distribution. Even in countries that have procured early access to doses, including the European Union, it's taking longer than expected to vaccinate the population. Further delays could weaken demand for crude later this year.

— Matt Egan, John Defterios and Chris Liakos contributed reporting.