On Sunday, OPEC+ oil producers, including Saudi Arabia, declared an unexpected reduction in their production by approximately 1.16 million barrels per day.
This move is predicted to result in an immediate surge in prices, according to analysts. The announcement occurred a day before a virtual meeting of an OPEC+ ministerial panel, involving Russia and Saudi Arabia, which was anticipated to maintain the current 2 million bpd cuts until the end of 2023.
In the previous month, oil prices dropped to around $70 per barrel, the lowest level in 15 months, due to apprehensions about the impact of a worldwide banking crisis on demand. Despite crude prices bouncing back to $80 after sources dismissed the possibility of additional support from OPEC+, no further measures were anticipated to bolster the market.
On Sunday, the CEO of investment firm Pickering Energy Partners claimed that the recent production cuts could raise oil prices by $10 per barrel. Additionally, oil broker PVM anticipated an immediate increase once trading resumed after the weekend.
“The market is likely to open up several dollars, potentially up to $3,” stated Tamas Varga, from PVM. “This decision is unequivocally bullish.”
On Sunday, OPEC, Russia, and other allies committed to reducing their production, bringing the total cut to 3.66 million barrels per day, which is equivalent to 3.7% of global demand, according to Reuters calculations.
Founder and Director of Energy Aspects, Amrita Sen, stated on Sunday that “OPEC is taking preemptive measures to address any potential decline in demand.”
The Saudi energy ministry explained that the kingdom’s voluntary cut was a precautionary step intended to support oil market stability.
In October of last year, OPEC+ agreed to cut output by 2 million barrels per day from November to the end of the year, a move that angered Washington as it raised oil prices due to tighter supply.
Sunday’s unexpected voluntary cuts start from May and last until the end of the year.
