The price of oil rose on Monday following the shock announcement by OPEC members that they will sharply cut production starting in May in a bid to boost prices following the recent collapse, according to AFP.
OPEC headquarters, ViennaPhoto: Philipp-Moritz Jenne / AP / Profimedia
In total, eight of the 23 participants in Opec+, which brings together the Organization of the Petroleum Exporting Countries (Opec) and its partners, decided to reduce their volumes by 1.16 million barrels per day, led by Saudi Arabia.
The announcement took the market completely by surprise, which was expecting a status quo, as the Saudis had “publicly and privately signaled”, until the meeting, “that they have no intention of intervening for the time being”, recalled Eurasia Group analysts.
“Usually they send out one or two trial balloons” before the meeting to test traders’ reaction, said Andrew Lebow of Commidity Research Group. “But this time it was a slap in the face.”
The alliance took note of these “voluntary adjustments” to production on Monday following a long-scheduled technical meeting via video conference (JMMC). In unison with its members, it assured that it was “a precautionary measure to support the stability of the oil market”.
But for analysts, it’s mostly regarding reaping “additional revenue,” Rystad Energy’s Jorge Leon commented in a note.
The cuts show OPEC will go to great lengths to “defend a price floor well above $80 a barrel,” he said, despite criticism from the United States and other consumer countries worried regarding rising inflation.
The banking crisis pushed crude oil prices down in March to their lowest level in a year, “an unacceptable level for OPEC members,” Ibrahim al-Ghitani, an expert on the UAE oil market, told AFP.
“Real Discounts”
After this concerted action by the big producers of black gold, the reaction of the markets was immediate: the two world benchmarks took off by regarding 8% at the beginning of the session, returning to the level before the turmoil in the banking sector.
Brent oil from the North Sea, the main European reference, with delivery in May, closed up 6.30%, at 84.93 dollars.
West Texas Intermediate (WTI), the most watched US variety, also for delivery in May, gained 6.27% to $80.42.
Iraq, Algeria, Saudi Arabia, the United Arab Emirates, Oman, Kazakhstan, Kuwait and Gabon will thus make major cuts from next month until the end of 2023. These range from 500,000 barrels per day (bpd) for Riyadh to 8,000 of bpd for Libreville.
Moscow extended its cut by 500,000 bpd until the end of 2023.
In total, the volume remaining underground will be “regarding 1.66 million barrels per day”, Opec said.
“Most of the cuts will be made by countries producing at or above their quotas, meaning ‘real supply cuts’ and a tighter market,” DNB analysts said.
Other countries might also “announce their own cuts if they deem (…) necessary,” according to Deputy Prime Minister for Energy Alexander Novak, interviewed by Russia’s Rossiya 24 television.
