By surprise. This is how the international community was surprised by the announcement of OPEC+ of a new reduction in oil production. The organization assures that it is a measure aimed at stabilizing prices, while everything indicates that this reduction will lead to a significant increase in the latter. It should not be forgotten that last October, OPEC+ announced a reduction of two million barrels of oil per day (bpd) until the end of 2022, which did not go down well with the States. -United. Indeed, the White House considers it preferable to lower prices in order to promote economic growth and reduce Russia’s profits from oil.
Riyadh and Moscow will cut their production by 500,000 barrels of oil per day, to which must be added the reduction of 180,000 bpd from Kuwait and 211,000 bpd from Iraq. Oman and Algeria will also reduce their production, but with a lesser impact, since the reduction does not exceed 50,000 bpd. The Saudi energy ministry defends this decision as a measure aimed at stabilizing the oil market. Just like the United Arab Emirates: “This voluntary initiative is a precautionary measure taken to ensure the balance of the market”, declared the Emirati Minister of Energy, Suhail bin Mohammed Al-Mazrouei.
However, some experts believe that this decision is far from stabilizing oil prices, which could increase in the short term. This is at least the opinion of Dan Pickering, co-founder of the investment company Pickering Energy Partners, who assures that “we will probably have a movement of 10 dollars (per barrel) for crude oil”. This aspect is one of the main concerns of Washington, which, after Russia’s unilateral cuts in February, expected a weakening of its relations with some OPEC+ allies.
Saudi and Emirati agencies say the move is not a U-turn but an implementation of an idea already agreed in October 2022. “This voluntary reduction is in addition to the reduction in production agreed at the 33rd Ministerial Meeting”, and they call it a “precautionary measure”. Iraq’s oil ministry also said it was a necessary decision to “address the challenges facing the global oil market and achieve a balance between supply and demand”. He adds that this decision was made “in a way that does not contradict the previous reduction policy”.
It is also assured that the measure was taken “in coordination with certain other participating countries of OPEC +”, which did not prevent the surprise in many Western countries. And the first reactions were not long in coming. One-month futures on Brent, the North Sea benchmark, rose 5% to $84, the highest level in just over a month. On the other hand, US West Texas Crude Oil is above $79, also up five percentage points.
The explanation for the rise, according to Vivek Dhar, energy analyst at CBA, in statements to Archyde.com, is that “The participation of the largest members of OPEC+ suggests that compliance with production cuts could be stronger than in the past.” This means that “oil markets could potentially see a reduction of around one percent in global oil supply or more from May.” Therefore, the United States and European countries view this decision with both bewilderment and fear about its consequences.