On Sunday, OPEC+ nations declared a cut in production of over 1 million barrels per day, which is expected to result in a surge in oil prices on Monday.
The leading country, Saudi Arabia, announced a reduction of 500,000 bpd, while other countries like Iraq, UAE, and Kuwait also announced cuts. Russia has decided to continue its 500,000 bpd production cut till the end of 2023. Dan Pickering, the CIO of Pickering Energy Partners, predicts that oil prices will increase by $5-10 per barrel in the coming days.
PVM, a prominent oil instruments broker, also expects a sudden surge in prices when trading resumes after the weekend. The discussion is now focused on whether the US will release more Strategic Petroleum Reserve (SPR) barrels. Leading oil instruments broker PVM expects an abrupt jump once trading starts after the weekend.
“I expect the market to open several dollars higher … possibly as much as $3,” Reuters quoted PVM’s Tamas Varga as saying.
“The kingdom will implement a voluntary cut of 500 thousand barrels per day from May till the end of 2023 in coordination with some other OPEC and non-OPEC Participating Countries in the Declaration of Cooperation,” Saudi Arabia’s Ministry of Energy stated.
According to the Ministry of Energy, the move is a precautionary measure aimed at supporting the stability of the oil market. This voluntary cut is in addition to the reduction in production agreed at the 33rd OPEC and non-OPEC Ministerial Meeting on October 5, 2022.
The US reacted by saying the surprise oil output cuts announced by Saudi Arabia and other OPEC+ countries were not advisable.
“We don’t think cuts are advisable at this moment given market uncertainty – and we’ve made that clear,” a spokesperson for the National Security Council said. “We will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers,” the spokesperson added.
Last month oil prices plunged close to $70 per barrel following fears of an imminent global banking crisis triggered by the collapse of US-based Silicon Valley Bank and Geneva’s Credit Suisse. However, prices came back up to close to $80 a barrel recently following supply disruptions in Iraq.