Oil Prices Surge After OPEC+ Producers Announce 1.66 Million Bpd Surprise Cuts

Oil Prices Surge After OPEC+ Producers Announce 1.66 Million Bpd Surprise Cuts

•Nigeria’s benchmark hits $85 per barrel

Emmanuel Addeh in Abuja

Oil prices spiked Monday after the Organisation of Petroleum Exporting Countries (OPEC) and its allies OPEC+ producers unexpectedly announced that they would cut output.

Brent crude, the global benchmark, jumped 5.33 per cent to $84.15 a barrel, while WTI, the US benchmark, rose 5.42 per cent to $79.79 earlier in the day, but rose to $85 and $80.51 respectively later in the day. Both were the sharpest price rises in almost a year, according to a CNN report.

The oil prices sunk as low as $73 and $67 a barrel respectively in the week following the collapse of Silicon Valley Bank in the United States on March 10, as the turmoil spread to the wider banking sector, raising fears of a global recession.

With oil prices now rising, inflation could remain higher for longer, adding pressure to a hot-button issue for consumers around the world.

A communiqué after the 48th Meeting of the Joint Ministerial Monitoring (JMCC), yesterday, said that OPEC had reviewed the crude oil production data for the months of January and February 2023.

“The meeting noted the following voluntarily production adjustment announced on 2 April 2023 by Saudi Arabia (500,000 bpd); Iraq (211, 000 bpd); United Arab Emirates (144,000 bpd); Kuwait (128,000 bpd); Kazakhstan (78,000 bpd); Algeria (48,000 bpd); Oman (40,000 bpd); and Gabon (8,000 bpd) starting May until the end of 2023.

“ These will be in addition to the production adjustments decided at the 33rd OPEC and non-OPEC Ministerial Meeting,” it stated.

It added: “The above will be in addition to the announced voluntary adjustment by the Russian Federation of 500,000 bpd until the end of 2023, which will be from the average production levels as assessed by the secondary sources for the month of February 2023.

“Accordingly, this will bring the total additional voluntary production adjustments by the above-mentioned countries to 1.66 million bpd,” it stated.

The cuts will start in May and last through the end of the year, an official with the Saudi Ministry of Energy was quoted as saying by Saudi state-run news agency SPA.

The reductions are on top of those announced by OPEC+ in October, according to SPA.

Meanwhile, in a note, Goldman Sachs analysts said the OPEC+ move was unexpected but “consistent with the new OPEC+ doctrine to act pre-emptively because they can, without significant losses in market share.”

The collective output cut by the nine members of OPEC+ totals 1.66 million barrels per day, the analysts said. They increased their price forecast for Brent this December to $95 per barrel.

Saudi Arabia’s energy ministry described its latest reduction as a precautionary measure aimed at supporting the stability of the oil markets, according to SPA.

Goldman Sachs also issued a revision of its oil price forecast, raising it to $95 from $90 at the end of the year for Brent crude.

The bank also raised its Brent crude forecast for 2024, now seeing it at $100 at the end of the year from an earlier projection of $97.

Last month, Goldman Sachs said that crude oil prices could rise to $107 per barrel if OPEC stood by its production targets.

In the same vein, JP Morgan said Brent oil prices could still end the year at $96 per barrel, adding that they view the surprise OPEC supply target cuts as a “pre-emptive measure” to assure that surpluses in the market do not extend into the second half of 2023.

“The most surprising part of the announcement is that it was not made sooner,” JP Morgan analysts said in a note , adding, “acting later diminishes the impact on overall balances and hence it takes longer for the price impact to take hold.”

However, Barclays said it sees a $5 upside to its $92 per barrel price forecast for Brent this year after the OPEC+ cuts.

But the White House pushed back on that notion — as well as the latest cuts by OPEC+.

“We don’t think cuts are advisable at this moment given market uncertainty — and we’ve made that clear,” a spokesperson for the National Security Council said. “We’re focused on prices for American consumers, not barrels.”

In October, OPEC+’s decision to cut production had already rankled the White House.

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