On Sunday, Saudi Arabia and other OPEC+ oil producers announced an unexpected reduction in oil output cuts of around 1.16 million barrels per day.
The move, which brings the total volume of cuts to 3.66 million bpd, or 3.7% of global demand, is expected to cause an immediate rise in prices. However, the United States has expressed concern, calling the move inadvisable due to market uncertainty.
The voluntary cuts will start from May and last until the end of the year, with Saudi Arabia, Iraq, the UAE, Kuwait, Oman, Algeria, and Kazakhstan all agreeing to reduce their production.
While some analysts have welcomed the move, others have criticized it, suggesting that it could undermine the fragile economic recovery that is taking place around the world. The U.S. has argued that the world needs lower prices to support economic growth and prevent Russia from earning more revenue to fund the Ukraine war. Despite these concerns, the cooperation between OPEC+ members appears to be strong, with Russia extending its voluntary cut of 500,000 bpd until the end of 2023.
The unexpected announcement comes ahead of a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia, and which had been expected to stick to the 2 million bpd of cuts already in place until the end of 2023. Oil prices last month fell towards $70 a barrel, the lowest in 15 months, on concern that a global banking crisis would hit demand. The latest reductions could lift oil prices by $10 per barrel, according to some analysts, although this remains to be seen.
Ultimately, the move by OPEC+ to reduce oil output cuts is likely to be met with mixed reactions, with some countries and investors welcoming the rise in prices, while others express concern about the impact on the global economy. As the world continues to navigate the ongoing COVID-19 pandemic and its economic fallout, the future of the oil market remains uncertain.
