Oil prices jumped more than 5 percent on Monday after the OPEC+ alliance announced plans to cut oil production by an additional 1.16 million barrels per day (bpd), in a surprise decision that could exacerbate tensions with Europe and the United States.
Brent Crude rose 5.31 percent to $84.13 a barrel, the sharpest price increase in nearly a year.
The move by the 23-member group including Saudi Arabia, Russia, Kuwait, the United Arab Emirates (UAE) and Iraq came after the bloc said in October it would maintain production cuts at 2 million barrels per day (bpd) until the end. the years. OPEC+ accounts for about 40% of world crude oil output.
Combined and after notification, oil cuts by OPEC+ members will increase by about 1.16 million bpd, reducing the total volume produced to 3.66 million, or 3.7% of global demand.
What happened: U.S. crude rose $4.26 to $79.93 and Brent oil futures rose $4.48 to $84.37 a barrel, according to Oilprice.com Monday at 4:27 a.m. ET, following news that major oil producers will cut their output this year .
Major stock markets and company valuations in the Middle East rose early Monday following the news. Saudi Arabia’s benchmark index gained 0.8 percent, with Retal Urban Development SJSC rising 1.5 percent and Dr Sulaiman Al-Habib Medical Services Group Co climbing 1 percent. Meanwhile in the UAE, Dubai’s main share index was up 0.9 percent and Abu Dhabi’s index was up 0.4 percent. The Qatar index rose 1.8 percent.
This came after OPEC member states with Russia and other allies issued statements on Sunday announcing that they will cut oil production from May until the end of 2023.
UAE Minister of Energy and Infrastructure Suhail bin Mohammed Al Mazrouei said these cuts will be in addition to the reduction agreed at last year’s meeting.
“This voluntary initiative is a precautionary measure taken to ensure market balance and is in line with the production reduction agreed during the 33rd OPEC and non-OPEC Ministerial Meeting, held on 5 October 2022, ” said the Minister in a statement.
The size cuts per country are as follows:
Saudi Arabia – 500,000 bpd
Iraq – 211,000 bpd
UAE – 144,000 bpd
Kuwait – 128,000 bpd
Kazakhstan – 78,000 bpd
Algeria – 48,000 bpd
Oman – 40,000 bpd
Why it’s important: It was an unexpected move, since OPEC+ was expected to maintain total oil production cuts of 2 million bpd until the end of 2023. This move adds more than 50% in cuts (1.16 million bpd).
Dan Pickering, head of investment firm Pickering Energy Partners, told Reuters on Sunday that these changes could raise oil prices by $10 dollars per barrel.
Oil prices rose to around $75 a barrel last month, according to Oilprice.com, as fears that the global banking crisis would hurt demand. However, a correction was not expected to support the market, and crude prices recently came back building towards $80. These collective cuts are seen by OPEC+ as a way to introduce guarantees that prices will not fall below $80.
An official of Saudi Arabia’s Energy Ministry said the sudden decision was a precautionary measure in case of any drop in demand, according to the state-owned Saudi Press Agency. The United States warned against the decision of the OPEC+ leadership and member states.
“We don’t think cuts are advisable at this time because of the market uncertainty – and we’ve made that clear,” said a spokesman for the US National Security Council.
In October, OPEC+’s decision to cut 2 million bpd (2% of global demand) defied US requests for Saudi Arabia, the de-facto leader of the oil-producing group, to delay its decision to cut oil output. month.
OPEC+ went ahead with the cuts that prompted President Joe Biden to promise consequences, adding to the already strained relationship between Riyadh and Washington.
The White House has asked the organization to increase its oil supplies in an effort to allow Russian crude oil exports and choke the country economically from March 2022, immediately after Russia’s invasion of Ukraine.
More information: Russia gave core OPEC+ members Saudi Arabia and the UAE unprecedented control over oil markets when it invaded and embargoed Ukraine. The United States expressed its discomfort with the leverage these countries received; the full results of these changes in relative power will play out in the medium term.
