OPEC+ has made a surprising announcement of an oil production cut exceeding 1 million barrels a day, reversing its previous commitment to maintain supply stability. This significant reduction comes at a time when the market was already anticipating tight supply for the latter part of the year. The inevitable price reaction could intensify global inflationary pressures, compelling central banks to maintain higher interest rates and heightening the risk of recession.
Saudi Arabia led the way by pledging a 500,000 barrel-a-day reduction, with other OPEC+ members, including Kuwait, the UAE, and Algeria, following suit. Russia announced that its production cut, initially planned from March to June, will continue until the end of 2023. The initial impact of these cuts, starting next month, will amount to approximately 1.1 million barrels a day, increasing to 1.6 million barrels a day less crude in the market than anticipated from July, due to the extension of Russia’s existing supply reduction.
This decision may reignite tensions between the US and Saudi Arabia, whose relationship with President Joe Biden’s administration has been strained. Last October, when OPEC+ made a surprise production cut of about 2 million barrels a day just weeks before the US midterm elections, Biden threatened consequences for Saudi Arabia. Although the administration did not follow through and recently praised various Saudi initiatives, the White House has not yet commented on the latest cuts.
As recently as Friday, OPEC+ delegates privately indicated that there were no plans to change production limits. Oil prices had recovered from a 15-month low last month as the situation began to stabilize, with Brent crude closing just below $80 a barrel on Friday. All 14 traders and analysts surveyed last week by Bloomberg anticipated no change, taking their cue from Saudi Energy Minister Prince Abdulaziz bin Salman, who had declared OPEC+’s current production targets would remain for the rest of the year.
Information for this briefing was found via the Associated Press and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
