Oil prices rose during trading on Monday as a result of the unexpected announcement by the main OPEC+ players of a voluntary cut in crude production of more than one million barrels per day, from May 1 to the end of the year.
During the first minutes of trading in the first week of April, oil prices jumped by more than 7% before reducing their gains to around 5%. The US West Texas crude traded at $79.8 per barrel, while crude prices reached $79.8 per barrel. Brent is currently trading at $84 per barrel.
While markets expected a price drop as a result of an agreement to reintroduce Iraqi Kurdistan’s oil to the market after it had been cut off for about a week, the decision to cut production altered the expectations.
According to a source in the Kingdom’s energy ministry, the main oil producers in the OPEC+ coalition issued simultaneous and independent statements on Sunday evening, including the announcement of a voluntary reduction in output, which included the announcement of Saudi Arabia – the alliance’s largest player – of a voluntary cut in its oil production by 500,000 barrels per day beginning in May until the end of 2023, in collaboration with several OPEC+ countries.
According to the Saudi Press Agency (SPA), citing an official source in the Saudi Ministry of Energy, this was a “precautionary measure” to achieve “stability and balance” in crude markets.
Saudi Arabia, the UAE, Kuwait, Oman, and Algeria specifically agreed to lower their daily output by a total of over one million barrels per day starting in May and continuing through the end of this year.
According to what each country announced, Saudi will reduce 500,000 barrels per day, Iraq 211,000 barrels, the UAE 144,000 barrels, Kuwait 128,000 barrels, Algeria 48,000 barrels, and Oman 48 thousand barrels.
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Similarly, Russia, a member of the OPEC+ alliance, announced that it would extend a 500,000 barrel per day cut in crude oil production until the end of 2023 as a “responsible and preventive measure.”
This is the largest cut in output since OPEC and its partners agreed in October 2022 to reduce output by two million barrels per day.
The cut comes despite concerns that it will raise inflation and prompt Central Banks to raise interest rates even further.
“This voluntary cut is a precautionary measure to achieve balance in the oil market,” said the UAE Minister of Energy and Infrastructure Suhail Al Mazrouei, according to the official state media WAM.
According to the UAE statement, the decision was made on the eve of the meeting of the Ministerial Oversight Committee of OPEC+ today, Monday, through visual communication techniques.
The sudden announcement of a reduction in oil production came despite repeated calls from the US to increase output, particularly with the jump in consumption and the full reopening of economic activities in China, the world’s largest oil consumer, following closures related to the Covid-19 pandemic.
The oil markets have seen significant gains in the last week as a result of the suspension of Iraqi Kurdistan’s oil exports in light of an international ruling that prevents Turkey from receiving the region’s oil exports without the approval of the Iraqi government, which is currently being settled between all parties. The semi-independent Iraqi Kurdistan Regional Government said it has agreed with the federal government to resume oil exports through Turkey.
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