Major oil powers led by Saudi Arabia announced a surprise production cut of more than a million barrels per day on Sunday, calling it a “precautionary” move aimed at stabilizing the market.
The reductions are in addition to Russia’s decision to extend production to 500,000 barrels per day, and despite calls from the US to increase production, inflation risks and pressure to raise interest rates.
Cuts from Saudi Arabia, Iraq, the UAE, Kuwait, Algeria and Oman from May to the end of the year will be more than a million barrels a day – the biggest reduction since the OPEC+ cartel cut two million barrels a day in a month October.
Russia, a leading member of the OPEC+ cartel, said it was also extending the current cut of 500,000 bpd until the end of this year, describing it as a “responsible and preventive action”.
An official of the Saudi energy ministry “stressed that this is a precautionary measure aimed at supporting the stability of the oil market”, the official Saudi Press Agency said.
The cuts follow a fall in oil prices that triggered jitters across the banking sector, the collapse of US lender SVB and UBS’s hasty buyout of troubled rival Credit Suisse, UAE-based oil expert Ibrahim al-Ghitani told AFP.
The cuts should push Brent crude prices, which were trading just below $80 a barrel late last week, to above $80 as a result, he said, calling prices below $80 “unacceptable ” for OPEC+.
“The producing countries adhere to a level of balance that supports their large financial budget this year, and their next economic plans,” said al-Ghitani.
– ‘Back pressures’ –
The cuts follow a controversial decision in October by OPEC and its allies, including Russia — collectively known as OPEC+ — to cut production by two million barrels a day.
That decline, the biggest since the height of the Covid pandemic in 2020, came despite concerns that it would fuel further inflation and pressure central banks to raise interest rates.
OPEC raised its 2023 forecast for world oil demand 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.
But “initial expectations of higher demand in the second half are now challenged by continued high inflation expectations and recessionary pressures”, said Gulf analyst Yesar al-Maleki.
“OPEC is taking a pre-emptive measure in case demand declines in the second half is 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 cuts 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 shutdown.
“As the world’s economies recover, we will see more consumption. And so we want to see the supply meet the demand,” said Jose Fernandez, United States Under Secretary of State for Economic, Energy and Environmental Affairs, on the CERAWeek side. energy conference, in Houston, Texas, last month.
On Monday, OPEC+ — the 13 members of the Organization of the Petroleum Exporting Countries and 11 non-OPEC allied countries — will hold a meeting of the Joint Ministerial Monitoring Committee via video link.
US President Joe Biden has regularly called for an increase in OPEC+ output since Russia’s invasion of Ukraine early last year pushed prices well above $120 a barrel.
After the cut in October, which came before the US mid-term elections, he warned of “consequences” for Saudi Arabia, a longtime ally.