Saudi Arabia and other OPEC+ oil producers on Sunday announced further cuts in their production amounting to around 1.16 million barrels per day in a surprise move they said was aimed at supporting market stability.
The development comes a day before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia, and which had been expected to stick to 2 million bpd of cuts already in place until the end of 2023.
Oil prices last month fell towards $70 a barrel, the lowest in 15 months, on concern that a global banking crisis would hit demand. Still, further action by OPEC+ to support the market was not expected after sources downplayed this prospect and crude recovered towards $80.
Oil prices surge
Oil prices jumped about $5 a barrel on Monday’s open, jolted by a surprise announcement by the OPEC+.
Sunday’s pledges bring the total volume of cuts by the Organization of the Petroleum Exporting Countries, Russia and other allies to 3.66 million bpd according to Reuters calculations, equal to 3.7% of global demand.
“OPEC is taking pre-emptive steps in case of any possible demand reduction,” Amrita Sen, founder and director of Energy Aspects, said on Sunday.
Last October, OPEC+ had agreed to an output cut of 2 million bpd from November until the end of the year, a move that angered Washington as tighter supply boosts oil prices.
The U.S. has argued that the world needs lower prices to support economic growth and prevent Russian President Vladimir Putin from earning more revenue to fund the Ukraine war.
Sunday’s unexpected voluntary cuts start from May.
Russia to cut production by 500,000 bpd
Saudi Arabia said it would cut output by 500,000 bpd while Iraq will reduce its production by 211,000 bpd, according to official statements.
The UAE said it would cut production by 144,000 bpd, Kuwait announced a cut of 128,000 bpd while Oman announced a cut of 40,000 bpd and Algeria said it would cut its output by 48,000 bpd. Kazakhstan will also cut output by 78,000 bpd.
Russia’s Deputy Prime Minister Alexander Novak also said on Sunday that Moscow would extend a voluntary cut of 500,000 bpd until the end of 2023. Moscow announced those cuts unilaterally in February following the introduction of Western price caps.
An OPEC+ source said Gabon would make a voluntary cut of 8,000 bpd and not all OPEC+ members were joining the move as some are already pumping well below agreed levels due to a lack of production capacity.
After Russia’s unilateral reductions, U.S. officials said its alliance with other OPEC members was weakening, but Sunday’s move shows the cooperation is still strong.
The Saudi energy ministry said in a statement that the kingdom’s voluntary cut was a precautionary measure aimed at supporting the stability of the oil market.
