Major oil-producing countries, led by Saudi Arabia, announced a surprise cut of over one million barrels per day on Sunday. This move was called a “precautionary” measure aimed at stabilizing the market. The reductions follow a Russian decision to extend its cut of 500,000 barrels per day. Despite US calls to increase production, the cuts could risk stoking inflation and pressure to raise interest rates. Cuts by Saudi Arabia, Iraq, UAE, Kuwait, Algeria, and Oman from May to the end of the year will exceed one million barrels per day, the largest reduction since the OPEC+ cartel slashed two million barrels per day in October.
Russia, a leading member of the OPEC+ cartel, said it was also extending an existing cut of 500,000 bpd to the end of this year, describing it as “a responsible and preventive action.” The cuts are a precautionary measure aimed at supporting the stability of the oil market, according to a Saudi energy ministry official.
The decision to reduce production comes after a drop in oil prices triggered by jitters over the banking sector. UAE-based oil expert Ibrahim al-Ghitani told AFP that Brent crude oil prices, trading just below $80 a barrel late last week, should rise to above $80 as a result of the cuts, and prices below $80 are unacceptable for OPEC+. “The producing countries adhere to a balancing level that supports their large financial budget this year, and their next economic plans,” al-Ghitani said.
OPEC raised its 2023 world oil demand forecast in February, saying it expected demand to grow by 2.3 million barrels per day to an average of 101.87 million barrels per day this year. However, “initial expectations of higher demand in the second half are now challenged by the prospects of continued high inflation and recessionary pressures,” said Gulf analyst Yesar al-Maleki. “OPEC is taking a pre-emptive measure in case of demand reduction in the second half is possibly higher,” he told AFP.
Saudi Arabia will cut 500,000 barrels per day, Iraq 211,000, the UAE 144,000, Kuwait 128,000, Algeria 48,000, and Oman 40,000, each country announced. The reductions ignore calls from the United States to raise production as consumption rises and as China, the world’s biggest oil consumer, reopens after its COVID-19 shutdown.
On Monday, OPEC+—the 13 members of the Organization of the Petroleum Exporting Countries and 11 non-OPEC allied countries—will hold a Joint Ministerial Monitoring Committee meeting by video-link. The US has regularly called for an increase in the OPEC+ output since Russia’s invasion of Ukraine early last year sent prices soaring to above $120 a barrel. After the cut in October, which preceded US mid-term elections, US President Joe Biden warned of “consequences” for Saudi Arabia, a long-standing ally.
