The main oil exporting countries, with Saudi Arabia in the lead, announced production cuts of about 1.6 million barrels per day this Sunday. The announcement by OPEC+ (bringing together 13 members of the Organization of the Petroleum Exporting Countries and 11 non-OPEC affiliates) surprised the market, as the organization had guaranteed that supply would remain stable.
Saudi Arabia alone announced a cut of 500,000 barrels per day from May. By the end of the year, the cut will reach one million barrels per day – the largest since OPEC+ cut two million barrels per day in October 2020.
The austerity threatens to fuel inflation and put pressure to raise interest rates.
Despite calls from the US to increase production and not follow Russia’s predetermined cut, Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Algeria and Oman decided to go ahead with production cuts. According to a Saudi energy ministry official quoted by the country’s official news agency, it is “a precautionary measure to support the stability of the oil market”.
The cuts follow the drop in oil prices caused by nervousness in the banking sector following the collapse of Credit Suisse, UAE oil expert Ibrahim al-Ghitani told AFP.
Brent oil prices, which traded just below $80 a barrel late last week, are likely to rise above $80 as a result of these cuts, al-Ghitani added, adding that prices below $80 are “unacceptable” for OPEC+.
These cuts follow the controversial decision by OPEC and its allies, including Russia – collectively known as OPEC+ – who cut production by two million barrels a day last October.
That cut, the largest since the height of the Covid pandemic in 2020, also came despite concerns it would fuel more inflation and put pressure on central banks to raise interest rates.
US President Joe Biden has regularly called for an increase in OPEC+ production since the Russian invasion of Ukraine early last year pushed prices above $120 a barrel.
Following the October cuts that preceded the United States midterm elections, Biden warned of the “consequences” for Saudi Arabia, a longtime ally.
Cutbacks by country in barrels of oil per day:
Saudi Arabia: 500,000
Russia: 500 000
Iraq: 211 000
United Arab Emirates: 144 000
Kuwait: 128 000
Kazakhstan: 78 000
Algeria: 48 000
Oman: 40,000
Source: DN
