OPEC+, a consortium comprising 22 oil-producing nations, announced Sunday an unexpected production cut that will likely give a further boost to oil prices bouncing off their recent lows.
The combined cut announced by the oil consortium will be around 1.16 million barrels per day, according to media reports. Saudi Arabia will voluntarily cut output by 500,000 bpd from May until the end of 2023, in coordination with other OPEC and non-OPEC participating countries, Amena Bakr, chief OPEC correspondent at Energy Intelligence, noted.
The decision to further cut output comes as a surprise, as OPEC+, which is expected to meet on Monday, was widely expected to keep its existing output cuts in place.
The U.S. had lobbied OPEC+ to increase supply and lowering energy costs as the price of fuel remains high with California having the highest fuel costs above the national average.
The Biden Administraction criticized OPEC+ for reducing barrels of oil as the price of barrel increases.
“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.
The production cuts agreed upon by the other nations were:
- U.A.E.: 144,000 bpd
- Oman: 40,000 bpd
- Kazakhstan: 78 kilobpd
- Kuwait: 128,000 bpd
- Iraq: 48,000 bpd
- Algeria: 48,00 bpd
- Russia: 500,000 bpd
Saudi energy officials reportedly said that the move was a precautionary measure aimed at supporting the stability of the oil market.
Goldman Sachs raised the Brent Crude Oil prices forecast as OPEC+ announced as the cuts in production.
“Today’s surprise (production) cut is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share,” the bank said.
The West Texas Intermediate crude oil futures, which rallied to a high of $123.68 a barrel in mid-June 2022, came off the level and ended the year at $80.47. The commodity came under further pressure this year, as oil dropped to a low of $64.12 on March 20 amid demand concerns stirred by the engulfing economic uncertainty.
Oil has recovered slightly from the lows seen in the past month. It ended Friday’s session at $75.67, up 1.75%.
Recent research by Wood Mackenzie found that oil will likely be a big winner this year, thanks to the demand brought by China’s reopening. The firm estimates that consumption by China alone could account for 1 million barrels per day of the 2.6 mb/d increase in 2023.
China’s reopening, the firm said, would mean there will be no hard landing in 2023. It expects international oil companies to see a crescendo of quarterly profits throughout the year as oil prices surge.
Oil demand in Europe and the U.S. will also likely remain resilient despite slowing economic growth, it said
Higher oil prices could boost the already bloated bottom line of major oil companies, such as ExxonMobil Corp., Chevron Corp., BP and Shell. On the flip side, they could also dent consumer spending and, in turn, economic growth, especially at a time when the global economy is grappling with multiple crises.
Gas expenses make up a sizable share of consumers’ out-of-pocket expenses, and consumer spending accounts for two-thirds of economic activity.
Produced in association with Benzinga
