Dubai, April 3 (BNA): Saudi Arabia and other OPEC+ oil producers on Sunday announced further cuts in oil production by about 1.16 million barrels per day, in a surprise move that analysts said would lead to an immediate price hike and called for the United States. Not recommended.
The pledges raise the total volume of cuts by OPEC+, which includes the Organization of the Petroleum Exporting Countries along with Russia and other allies, to 3.66 million barrels per day, according to Reuters calculations, equivalent to 3.7% of global demand.
Sunday’s development comes a day before a virtual meeting of the OPEC+ ministerial committee, which includes Saudi Arabia and Russia, which was expected to stick to cuts of two million barrels per day until the end of 2023.
Oil prices fell last month towards $70 a barrel, the lowest level in 15 months, amid fears that a global banking crisis would hit demand. However, no further actions by OPEC+ were expected to support the market after sources downplayed this possibility and crude oil recovered towards $80.
The head of investment firm Pickering Energy Partners said Sunday that the latest cuts could raise oil prices by $10 a barrel, while oil broker PVM said it expects an immediate jump once trading begins after the weekend.
“I expect the market to open several dollars higher… maybe as high as $3,” said Tamas Varga of PVM. “The step is unreservedly upward.”
Saudi Arabia, the largest producer in OPEC, said it would cut production by 500,000 barrels per day. The Saudi Ministry of Energy said that the Kingdom’s voluntary cut is a precautionary measure aimed at supporting the stability of the oil market.
Amrita Sen, founder and director of Energy Aspects, said OPEC was taking proactive steps in the event of any potential demand cut.
Last October, OPEC+ agreed to cut production by 2 million barrels per day from November until the end of the year, a move that angered Washington as supply tightening fueled an increase in oil prices.
The Biden administration said it viewed the move announced by producers on Sunday as unwise.
A spokesperson for the National Security Council said: “We don’t think cuts are advisable at this time given the uncertainty in the market – and we’ve made that clear.”
Voluntary cuts start in May and continue through the end of the year. An official statement stated that Iraq will reduce its production by 211 thousand barrels per day.
The UAE said it would cut production by 144,000 barrels per day, Kuwait announced a cut of 128,000 barrels per day, while Oman announced a cut in production by 40,000 barrels per day, and Algeria said it would cut production by 48,000 barrels per day. Kazakhstan will also cut production by 78 thousand barrels per day.
Russian Deputy Prime Minister Alexander Novak also said on Sunday that Moscow will extend a voluntary cut of 500,000 barrels per day until the end of 2023. Moscow unilaterally announced the cuts in February following the imposition of price ceilings by the West.
An OPEC+ source said Gabon would voluntarily cut 8,000 bpd. Not all OPEC+ members have joined the move because some are already pumping well below agreed levels due to a lack of production capacity.
After Russia’s unilateral cuts, US officials said its alliance with other OPEC members was weakening, but Sunday’s move showed cooperation remains strong.
HF