OPEC+ announced on Monday that it would cut output by 1.16 million barrels per day from May to the end of 2023, in a “precautionary measure” aimed at stabilizing the oil market. The voluntary cuts will start from May to end 2023, Saudi Arabia announced, adding that other member states including the UAE, Kuwait, Oman, Iraq, Algeria and Kazakhstan will also reduce their output. The move comes after Russia’s decision to trim oil production by 500,000 barrels per day until the end of 2023.
The news sent Brent crude futures jumping 5.1% to $83.95 a barrel, while U.S. West Texas Intermediate crude futures soared 5.2% to $79.64 a barrel. Analysts predict that the new cut may push oil prices towards the $100 mark again, considering China’s reopening and Russia’s output cuts as a retaliation move against western sanctions. However, it could also reverse the decline in inflation, which would “complicate central banks’ rate decisions.”
In March, oil prices fell to their lowest since December 2021, as traders feared the banking rout could dent global economic growth. The oil cartel and its allies are looking to avoid a repeat of the 2008 crash when oil prices crashed from $140 to $35 in six months, said Bob McNally, president of Rapidan Energy Group. He added that while it’s not his base case, oil prices could “make a dash for $100” if Chinese demand goes back to 16 million barrels a day in the second half of this year and Russian supply starts to go off due to sanctions.
Analysts say the latest cut is set to deliver a more significant impact than the one set last year. Energy Aspects’ founder Amrita Sen expects prices to hit $100 per barrel. However, Sen holds the view that the output cut could potentially be reversed, hinging on easing global market pressures. Meanwhile, Goldman Sachs said the surprise cut is “consistent” with OPEC+’s doctrine to act preemptively. Goldman analysts led by Daan Struyven said the surprise cut is “consistent” with OPEC+’s doctrine to act preemptively.
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