On Sunday, Saudi Arabia and other OPEC+ oil producers announced further oil cuts of around 1.16 million barrels per day. Analysts predicted that the unexpected action would result in an immediate price increase, and the United States deemed it unwise.
The pledges raise the overall amount of reductions by OPEC+, consisting of the Organization of the Petroleum Exporting Countries, Russia, and other allies, to 3.66 million barrels per day, equivalent to 3.7% of global consumption.
OPEC+ Meeting
It was expected to stick to the 2 million bpd reductions in place until the end of 2023, including Saudi Arabia and Russia.
Oil prices reached $70 per barrel last month, the lowest level in 15 months, due to concerns that a worldwide banking crisis might impact demand. Despite this, it was not anticipated that OPEC+ would take more action to assist the market, as this possibility was dismissed by sources and oil prices returned near $80.
The new reductions might result in a $10 per barrel increase in oil prices, according to the president of investment firm Pickering Energy Partners, while oil trader PVM anticipates an instant increase once trading resumes after the weekend.
Saudi Arabia, the largest producer in OPEC, has stated that it will reduce output by 500,000 barrels per day. The Saudi energy ministry suggested that the kingdom’s voluntary reduction was a precautionary step intended to protect the oil market’s stability.
Last October, OPEC+ agreed to a 2 million bpd output cut beginning in November and lasting until the end of the year, a move that infuriated Washington as tighter supply increases oil prices.
The United States has claimed that the globe requires lower prices to boost economic growth and prevent Russian President Vladimir Putin from generating more money to fund the Ukraine conflict.
The Biden administration stated that the producers’ decision disclosed on Sunday was unwise.
Oil Cuts To Start In May
The voluntary reductions begin in May and continue until the end of the year. According to an official announcement, Iraq would decrease production by 211,000 bpd.
The UAE declared a production cut of 144,000 bpd, Kuwait announced a production cut of 128,000 bpd, Oman announced a production cut of 40,000 bpd, and Algeria announced a production cut of 48,000 bpd. Kazakhstan will reduce output by 78,000 barrels per day.
Aleksandr Novak, the Deputy Prime Minister of Russia, stated on Sunday that Moscow would prolong a voluntary cut of 500,000 barrels per day until the end of 2023. In February, following the adoption of pricing ceilings in the West, Moscow unilaterally announced this reduction.
A source from OPEC+ stated that Gabon will voluntarily reduce output by 8,000 bpd and that not all OPEC+ countries would follow suit, as some are already pumping well below agreed-upon levels due to a shortage of production capacity.
After Russia’s unilateral reductions, U.S. officials claimed that its relationship with other OPEC members was eroding; nevertheless, Russia’s action on Sunday demonstrates that the cooperation remains robust.
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