OPEC+ Announces Surprise Oil Production Cuts

  • The unexpected move comes ahead of Monday’s meeting of ministers
  • Total OPEC+ cut commitments now stand at 3.66 million bpd
  • Oil could hit $10 a barrel – Analyst

DUBAI, April 2 (Reuters) – Saudi Arabia and other OPEC+ oil producers announced further cuts in their output on Sunday, prompting an immediate rise in prices by about 1.16 million barrels per day, analysts said.

The development comes a day ahead of a virtual meeting of the OPEC+ ministerial group, which includes Saudi Arabia and Russia, and it was already expected to remain in 2 million bpd cuts until the end of 2023.

Surprising production cuts

Oil prices fell to $70 a barrel last month, a 15-month low, on concerns that the global banking crisis will hurt demand. However, after sources downplayed the prospect and crude oil rebounded to $80, no further action by OPEC+ is expected to support the market.

The latest cut could lift oil prices by $10 a barrel, the head of investment firm Pickering Energy Partners said on Sunday, while oil broker PVM said it expects an immediate improvement when trading resumes after the weekend.

“I expect the market to be several dollars higher.

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, equivalent to 3.7% of global demand, according to Reuters calculations.

OPEC is “taking proactive steps in case of any potential demand cuts,” Amrita Sen, founder and director of Energy Features, said on Sunday.

Saudi Arabia’s energy ministry said the kingdom’s voluntary cut was a precautionary measure aimed at supporting the stability of the oil market.

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Last October, OPEC+ agreed to a production cut of 2 million bpd from November to the end of the year, angering Washington as tight supplies push up oil prices.

The U.S. has argued that the world needs lower prices to support economic growth and prevent Russian President Vladimir Putin from raising more revenue to fund the war in Ukraine.

Unexpected voluntary reductions on Sundays will begin in May and last until the end of the year.

Saudi move

OPEC producer Saudi Arabia said Iraq would cut its production by 500,000 bpd while Iraq would cut its output by 211,000 bpd, according to official reports.

The UAE announced a production cut of 144,000 bpd, Kuwait a 128,000 bpd cut, Oman a 40,000 bpd cut and Algeria a 48,000 bpd cut. Kazakhstan will also cut production by 78,000 bpd.

Russia’s Deputy Prime Minister Alexander Novak said on Sunday that Moscow would extend the voluntary cut of 500,000 bpd until the end of 2023. Moscow unilaterally announced those cuts in February following the introduction of Western price caps.

An OPEC+ source said that Gabon would voluntarily cut 8,000 bpd and that not all OPEC+ members had joined the move, with some falling below the already agreed levels due to lack of production capacity.

After Russia’s unilateral cuts, US officials said its alliance with other OPEC members was weakening, but Sunday’s move showed cooperation was still strong.

Reuters Graphics

(Reporting by Maha El Dahan, Ahmad Rasheed, Dmitry Zhdanikov and Adam Makari, Additional reporting by Alex Lawler, Ahmed Khader and Gary McWilliams) Writing by Alex Lawler Editing by Hugh Lawson, Sharon Singleton and Philippa Fletcher

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