The decision of the OPEC+ to cut the oil production down took the markets by surprise. The price in Brent crude jumped suddenly from USD 80 to USD 85 per barrel, an increase of about 7-8%,
Saudi Arabia, Russia and their oil-producing allies announced on Sunday, 2 April 2023, that they would cut production by more than 1.2 million barrels of crude a day, or more than 1 percent of world supplies, in an apparent effort to increase prices.
The OPEC+ accounts for nearly 40% of the world oil supplies.
Saudi Arabia will reduce production by 500,000 barrels per day, and Iraq by 211,000 barrels. The Saudi Ministry of Energy explained that this is necessary as a “precautionary measure designed to maintain the stability of the oil market.”
Russia had already announced plans to cut its oil production by 500,000 barrels per day in March, amounting to 5% of its output or nearly 0.5% of global production
The rise in oil prices came despite gloomier global economic prospects driven by the turmoil in the global banking sector.
Fitch said the oil market was in “a moderate surplus” in the first quarter, with inventories rising in both January and February.
“The decision on production cuts increases the likelihood of the market switching into deficit this year,” it said, as demand is expected to increase, primarily due to China’s reopening.
Against this backdrop, Fitch said it now expects prices to average US$85/bbl this year before declining next year, reports Investment Executive. /// nCa, 5 April 2023