Page 6 - NorthAmOil Week 14 2023

NorthAmOil COMMENTARY NorthAmOil

OPEC+ announces

surprise output cut

The producer group has promised to keep

speculators on their toes and it had done just

that, once again, springing a 1mn-bpd-plus cut

GLOBAL OPEC and several of its partners in the OPEC+ under the microscope in the wake of a political
group made a surprise announcement over the shake-up in the Middle East, partly brokered
WHAT: weekend, declaring that they would make a by China, which figures to have a growing role
Saudi Arabia, Iraq, the voluntary oil production cut of 1.15mn barrels in the region as Europe and the US press ahead
UAE, Kuwait, Kazakhstan, per day, which will run until the end of the year. with energy transition goals.
Algeria, Oman and In tandem, Russia said that it would extend its Following the deal’s announcement, a spokes-
Gabon cut this week, pre-existing voluntary reduction of 500,000 bpd person for the US National Security Council
compounding the 500,000 from May until the end of 2023. said: “We don’t think cuts are advisable at this
bpd already being In keeping with their previous arrangements, moment given market uncertainty – and we’ve
withheld by Russia. Saudi Arabia and Russia will cut by an equal made that clear.” The spokesperson added: “We
500,000 bpd, while Iraq said it would withhold will continue to work with all producers and
WHY: 211,000 bpd, UAE 144,000 bpd, Kuwait 128,000 consumers to ensure energy markets support
The level withheld under bpd, Kazakhstan 78,000 bpd, Algeria 48,000 economic growth and lower prices for Ameri-
the latest deal will bpd, Oman 40,000 bpd and Gabon 8,000 bpd. can consumers.”
increase to 1.66mn bpd The group accounts for about 40% of all the
in July once Russia’s world’s crude oil output. Market reaction
current voluntary cut A Saudi energy ministry official said the move Oil price immediately surged on the news on
expires. was “a precautionary measure aimed at support- April 3. The cost of Brent jumped from circa $80
ing the stability of the oil market”, the official to over $86 – the biggest one day jump in years –
WHAT NEXT: Saudi Press Agency said. before settling at $84.
It will then run through In total, around 1.15mn bpd will be withheld That is a sharp reversal of the sudden fall in
the end of the year, but from the market from May, with that level seen oil prices last month towards $70 a barrel, the
few would bet against rising to 1.66mn bpd from July. lowest in 15 months, on concern that a global
OPEC+ making another The announcement came as a surprise fol- banking crisis would hit demand.
surprise move. lowing comments made by the group’s de-facto The return of high energy costs will reignite It will also
head, Saudi Arabian Energy Minister Prince the cost-of-living crisis by increasing inflation
Abdulaziz bin Salman Al-Saud in February, and slowing growth, economists warned. place Saudi-
when he said the deal the group “struck in Octo- Oil companies were winners as energy giants US relations
ber is here to stay for the rest of the year. Period.” BP and Shell saw their share prices follow the
That agreement saw OPEC reduce its allocated rise in oil prices upwards the same day: both back under the
production level from 26.7mn bpd by a ‘vol- rose more than 4%. Oil prices are now back at
untary adjustment’ of 1.27mn bpd to 25.4mn levels seen before the conflict in Ukraine began. microscope in
bpd, while its non-OPEC partners cut by just The White House was not happy with the
over 700,000 bpd. Saudi Arabia and Russia each decision and said that it would prefer to see oil the wake of a
made a voluntary cut of 526,000 bpd, though producers increase production down to reduce political shake-
in reality Russian production had already been prices.
hampered by a shrinking market for its crude A spokesperson for the US National Security up in the Middle
following Western restrictions on purchases. Council said: “We don’t think cuts are advisable
While there had been no indication of at this moment given market uncertainty - and East.
another reduction, its announcement comes as we’ve made that clear.”
fears remain about the state of global banking, The relationship between the US and Saudi
and the producers’ group appears to remain Arabia has become increasingly strained since
highly conservative following the disastrous the advent of the so-called shale revolution
doubleheader of an oil price war and the Covid- made the US a net exporter of oil. Washington
19 in 2020. is not part of the OPEC cartel, making it a rival
It will also place Saudi-US relations back of the cartel.

P6 www. NEWSBASE .com Week 14 06•April•2023