In a surprise move that caught the attention of analysts, Saudi Arabia and other OPEC+ oil producers announced further oil output cuts on Sunday. The reductions, which amount to approximately 1.16 million barrels per day, come just a day before an OPEC+ ministerial panel meeting, which had been expected to maintain the 2 million bpd cuts already in place until the end of 2023.
These new pledges now bring the total volume of cuts by OPEC+ to 3.66 million bpd, accounting for 3.7% of global demand. While oil prices had fallen towards $70 a barrel last month on concerns over a global banking crisis, further action by OPEC+ to support the market was not expected. But analysts predict the surprise cuts could raise oil prices by as much as $10 per barrel.
The United States, however, has called the move inadvisable, arguing that lower oil prices are needed to support economic growth and prevent Russian President Vladimir Putin from earning more revenue to fund the ongoing conflict in Ukraine. Nonetheless, OPEC+ is taking pre-emptive measures to support the stability of the oil market, according to Amrita Sen, founder and director of Energy Aspects.
The voluntary cuts will begin in May and last until the end of the year. The United Arab Emirates said it would cut production by 144,000 bpd, while Kuwait announced a cut of 128,000 bpd, and Iraq will reduce its production by 211,000 bpd. Russia's Deputy Prime Minister Alexander Novak also confirmed that Moscow would extend a voluntary cut of 500,000 bpd until the end of 2023.
Despite the previous disagreement over output cuts, this recent move shows that OPEC+ remains a strong and cooperative force. While some countries will not be joining the cut due to a lack of production capacity, this unprecedented announcement could have significant implications for the global oil market.
