On Sunday, Saudi Arabia and other members of the OPEC+ oil producers surprised analysts by announcing additional oil output cuts of approximately 1.16 million barrels per day. This move is expected to cause an immediate increase in oil prices, despite the United States calling it inadvisable.
When combined with previous cuts, this new pledge brings the total amount of cuts by OPEC+ to 3.66 million barrels per day. This number, according to calculations by Reuters, is equal to 3.7% of global demand.
In the previous month, oil prices dropped to as low as $70 a barrel, the lowest it has been in 15 months. This was due to concerns that a global banking crisis would impact the demand for oil. However, despite the dip in prices, there were no expectations for OPEC+ to take any further actions to support the market. Sources had downplayed the possibility of such actions, and crude oil prices eventually rebounded towards $80.
The largest producer within OPEC, Saudi Arabia, has announced that it will cut its oil output by 500,000 barrels per day. According to the Saudi energy ministry, this voluntary reduction is a precautionary measure that aims to support the stability of the oil market.
In October of last year, OPEC+ had reached an agreement to cut output by 2 million barrels per day starting from November until the end of the year. This move led to Washington’s anger as tighter supply often results in an increase in oil prices.
On Sunday, Russia’s Deputy Prime Minister Alexander Novak announced that Moscow would be extending its voluntary output cut of 500,000 barrels per day until the end of 2023. These cuts were initially announced unilaterally by Moscow in February, following the introduction of Western price caps.
In addition to Saudi Arabia and Russia, several other OPEC+ members have also announced cuts in their oil production. The UAE will reduce production by 144,000 barrels per day, while Kuwait has announced a cut of 128,000 barrels per day. Oman will reduce its output by 40,000 barrels per day, Algeria by 48,000 barrels per day, and Kazakhstan by 78,000 barrels per day.
The Biden administration has expressed its view that the move announced by the oil producers on Sunday is unwise.