Saudi Arabia called a precautionary measure to support market stability sent crude oil prices skyrocketing on monday’s surprise announcement by OPEC+ to further reduce production by top producer
Brent rough exchange at $84.26 a barrel, up $4.37, or 5.5% subsequent to contacting the most elevated in a month at $86.44 prior in the meeting.
After earlier reaching the highest level since late January, US West Texas Intermediate crude was at $79.90 a barrel, an increase of $4.23, or 5.6%.
On Sunday, the Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, announced reductions in production of approximately 1.16 million barrels per day, which sent shockwaves through the market.
At its monthly meeting on Monday, the OPEC+ group expect to keep its earlier decision to cut oil production by 2 million barrels per day until December.
According to calculations by Reuters, the pledges bring the total reduction in OPEC+ oil production to 3.66 million barrels per day, or 3.7% of global demand.
Goldman Sachs’ analysts stated in a note that as a result, the company lowered its end-2023 production forecast for OPEC+ by 1.1 million barrels per day and raised its Brent crude oil prices forecasts to $95 and $100 per barrel for 2023 and 2024, respectively.
Saudi and OPEC+ oil revenues could rise by 7 percent as a result of the output reduction, according to Goldman.
The Biden administration said it thought the oil cuts from OPEC were stupid.
The justification for OPEC+’s additional production cuts was questioned by some analysts.
Vandana Hari, the founder of oil market analysis provider Vanda Insights, stated, “It’s hard to buy the ‘pre-emptive’ and ‘precautionary’ reasoning – especially now when the banking crisis had tailed off and Brent had crawled back up towards $80 from its 15-month lows earlier in March.”
Despite lower OPEC oil output in March due to oilfield maintenance in Angola and a halt in some of Iraq’s exports, Brent fell to $70 a barrel, the lowest level in 15 months. This was due to concerns that a global banking crisis and rising interest rates would impact demand.
“The present move, similar to the October cut, can be perused as another unmistakable sign that Saudi Arabia and its OPEC accomplices will look to cut off full scale sell-offs and that Jay [Jerome] Powell isn’t the main national investor that is important,” RBC Capital examiner Helima Croft said.
“The primary concern is Washington and Riyadh essentially have different cost focuses for their key arrangement drives.”
JP Morgan analysts stated that the move came later than anticipated and that the slow response to lower prices would have little effect on overall balances and could delay the impact of the price.
They state, “Since November, our global oil supply-demand balance suggested a strong policy action required to control global oil surpluses.”
Energy Information Administration (EIA) data revealed on Friday that US crude production increased in January to 12.46 million barrels per day (bpd), the highest level since March 2020.