Together with Russia’s announced production cuts, Opec+ move spells output cuts of 1.6 million barrels per day
Saudi Arabia, the United Arab Emirates (UAE) and other key oil-producing members of the wider Opec+ alliance have announced surprise production cuts totalling more than 1.1 million barrels per day, declaring their intention is to stabilise crude markets.
Several nations, led by Opec kingpin Saudi Arabia, on Sunday made a coordinated move to further curtail oil production, aiming to reverse the recent decline in oil prices.
Vandana Hari, founder of Vanda Insights, a Singapore-based global energy market intelligence provider said the announcement had brought a "knee-jerk reaction" to oil markets.
“Brent futures spiked by more than 8% at Monday’s (opening) on the back of Sunday’s surprise OPEC+ cuts... but calmed down to 5.5% in a few hours,” she noted.
Hari cautioned that the move by the Opec+ members comes at a time when central banks attempt to control "stubbornly high" inflation is posing a risk of global recession.
Brent one-month futures were trading well above $84 a barrel as Asian trading drew to a close — up close to 5% — while the monthly futures for West Texas Intermediate (WTI) were trading at $79.8 a barrel.
Russian production cuts
The Opec+ move comes just days after sanction-hit Russia signalled it would extend a voluntary cut of 500,000 bpd until the end of 2023.
Moscow earlier announced that unilateral cut in February following the introduction of Western price caps on seaborne Russian crude.
Along with Russia’s production cuts, the combined global production cut now stands at more than 1.6 million bpd, which could significantly impact oil prices in the near term, analysts believe.
Saudi Arabia said it would reduce output by 500,000 bpd, Iraq 211,000 bpd, the United Arab Emirates 144,000 bpd, Kuwait 128,000 bpd, Algeria 48,000 bpd, Oman 40,000 bpd and Gabon 8000 bpd — each nation announced separately in a well-co-ordinated move.
The fresh cuts are on top of the Opec+ decision last October to slash oil production by up to 2 million bpd.
Oil prices last month touched 15-month lows in response to a banking crisis that followed the collapse of two US lenders and resulted in Credit Suisse being rescued by Switzerland’s biggest bank UBS.
Precautionary measure
A Saudi energy ministry official described the latest cuts at a "precautionary measure aimed at supporting the stability of the oil market", according to SPA, Saudi Arabia’s official press agency.
Suhail Mohammed Al Mazrouei, UAE’s Minister of Energy and Infrastructure, said his country's cuts will be effective May through the end of 2023 and stated: "This voluntary initiative is a precautionary measure taken to ensure market balance and comes in alignment with the production cut agreed upon during the 33rd Opec and non-Opec Ministerial Meeting, held on 5 October 2022."
Opec+ is scheduled to hold the meeting of the Joint Ministerial Monitoring Committee, on Monday, via videoconferencing.
US says cuts inadvisable
The United States said that “it sees the move announced by the producers on Sunday as unwise”.
“We don’t think cuts are advisable at this moment given market uncertainty — and we’ve made that clear,” a spokesperson for the National Security Council said.
A spokesperson said that the Biden administration would continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers.
Biden has regularly called for an increase in Opec+ output after Russia's invasion of Ukraine sent prices soaring last year.
