Saudi-Led OPEC+ Announces Surprise 1.16 Million Barrels-per-Day Oil Cuts
The oil-producing country coalition OPEC+ announced dramatic production cuts on Sunday totaling 1.16 million barrels per day (bpd), sending oil prices surging on Monday morning.
OPEC+ is an extension of the Organization of Petroleum-Exporting Countries (OPEC) that includes several other producers not formally belonging to the OPEC cartel, most prominently Russia. OPEC+ had announced a cut of 2 million bpd that shocked the world in October, following a visit to Saudi Arabia by leftist President Joe Biden widely considered to be intended to convince Riyadh to expand, not cut, oil production.
Biden administration officials had urged OPEC+ to increase its production supply in early March.
The production cut announced this weekend spans multiple prominent members of the coalition. Saudi Arabia announced it would cut its production by half a million bpd; Russia would extend a cut of the same amount through the end of the year. The largest cuts in addition to these two countries would come from Iraq (211,000 bpd), the United Arab Emirates (UAE – 144,000 bpd), and Kuwait (128,000 bpd). Oman, Algeria, and Kazakhstan also announced smaller, but significant, decreases in their oil production. The cuts will reportedly remain in place through 2023 and begin in May, except for Russia’s cuts, which are already in place and have been extended. OPEC+ is planning to have its monitoring committee meet again on Tuesday, but its announcement did not offer any indication it would reverse the decision.
The Qatari news organization Al Jazeera, citing the state-run Saudi Press Agency, quoted a Saudi energy official explaining the cuts as a “precautionary measure” to prevent a sudden fall in oil prices and maintain “stability.”
In Moscow, Vladimir Putin’s top spokesman Dmitry Peskov defended the measure as being in the “interest of global energy markets” and preemptively condemned third parties, presumably meaning the United States, for discouraging oil cuts.
“Whether other countries are satisfied or unsatisfied is probably their own business,” Peskov said.
“We rely on decisions taken by oil-producing countries. In this case the position of both OPEC+ and OPEC is important. And in this case maintaining global prices for oil and petroleum products at proper levels meets the interests of global energy,” Peskov explained.
The decision resulted in a six-percent increase in oil prices in Asian markets on Monday morning, the Agence France-Presse (AFP) reported.
“Crude futures surged almost eight percent at one stage,” AFP noted, citing market experts who said the decision “caught the markets off guard,” particularly given recent cuts and the “return of optimism to the markets.”
The Biden administration has spent much of the past year urging foreign oil producers to increase their supplies while pushing policies at home to decrease American production. Biden declared in his latest State of the Union address in February that America would need oil “for at least another decade,” outraging oil producers who saw the remark as a threat to shut down oil production at home in ten years. America has the world’s largest known oil reserves and is the world’s largest crude oil producer, but is not a member of OPEC or OPEC+. Despite urging the elimination of fossil fuels at home, the Biden administration has openly advocated for the production of more foreign oil.
“As world economies recover, we’ll see more consumption. And therefore, we’d like to see supply meet demand,” U.S. Undersecretary of State for Economic Affairs Jose Fernandez said in March. “We would like to see more supply.”
The Biden administration similarly called for Saudi Arabia, in particular, to urge greater production last summer, shortly before Biden visited the country. Biden himself insisted in an opinion piece in the Washington Post that he was not visiting the country, a U.S. ally he had promised to turn into a “pariah” while running for president, to ask for more oil production.
Instead of increasing supply, the Saudi-led OPEC+ announced a cut in October of 2 million bpd in production, at the time a historically large decrease expected to dramatically hike prices for both crude oil and refined products such as gasoline and diesel. Market experts suggested then that China’s ongoing coronavirus lockdowns were partly to blame for the decision, as the Communist Party forcing thousands, if not millions, into house arrest or quarantine camp internment kept one of the largest markets in the world for oil products off the road. The artificially reduced demand should have theoretically ceased to be a problem in December, however, when Beijing responded to nationwide, sometimes violent, protests against coronavirus-related civil rights violations by abruptly announcing a total end to “zero-Covid,” the official name for the house arrest and quarantine camp policy.
As of Monday, however, the industry monitoring site OilPrice.com reported that China’s market has rebounded slowly, if at all in some sectors, underwhelming observers and potentially stifling oil demand.
“The relatively modest and short-lived pick-up in the manufacturing PMIs in the first quarter suggests that the industrial sector has only received a limited boost from reopening,” OilPrice.com quoted the agency Capital Economics as telling Reuters. “This is partly due to a weaker global backdrop, but it is also consistent with our view that most of the reopening recovery will come from the services sector which was hardest hit by the zero-COVID policy.”
Saudi Energy Minister Prince Abdulaziz bin Salman had suggested that OPEC+ could consider more cuts in the near future in late November, denying an anonymous report in the Wall Street Journal at the time claiming the cartel was considering a production boost.
“It is well known, and no secret, that OPEC+ does not discuss any decisions ahead of its meetings,” Prince Abdulaziz said. “The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”