- OPEC+ nations announced oil output cuts totalling 1.2 million barrels a day on Sunday.
- They had tumbled in March due to the bank crisis.
- Thanks to the shock production cuts totalling around 1.15 million barrels per day, crude oil prices rose sharply on Monday.
Crude oil prices were so severely impacted by the March banking crisis that the Organization of the Petroleum Exporting Countries, or OPEC, intervened with drastic production cuts to stop the bleeding, as reported by Business Insider.
Stability of oil market
According to the state-run Saudi News Agency, Saudi Arabia, the de facto leader of OPEC, announced on Sunday that it will reduce crude production by 500,000 barrels per day from May through the end of 2023 as a “precautionary action aimed at supporting the stability of the oil market.”
According to the Associated Press, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman, all announced their production restrictions on the same day, totalling 649,000 barrels per day. According to the Russian news agency TASS, Russia’s deputy prime minister Alexander Novak announced on Sunday that the nation would be extending its output cut of 500,000 barrels per day until the end of 2023.
The unexpected production cuts, which amounted to almost 1.15 million barrels per day, caused a dramatic increase in crude oil prices on Monday. US West Texas Intermediate and Brent crude oil futures both increased by 5.6% and 5.4% to trade at $79.89 and $84.23 per barrel, respectively, with gains reaching 8%.
Before the banking crisis, the two benchmark oil grades were last trading above $80 per barrel in early March.
According to data from Bloomberg, the decreases are thought to be an effort to support the oil markets after prices had their worst first-quarter performance since 2020. During the second half of 2022, oil prices have been under pressure because of worries about a worldwide recession that will reduce energy demand.
The unexpected output reduction might worsen US-Saudi relations.
After the Biden administration’s lobbying efforts to block OPEC’s most recent round of production cutbacks in October 2022 were unsuccessful, the unexpected oil output cut is anticipated to further damage US-Saudi relations.
Geopolitical dangers may be disproportionately increased as a result, given that Saudi Arabia not only unintentionally aligns with Russia but is also seen to be warming up to China. In a Monday note seen by Insider, Vishnu Varathan, the Mizuho Bank’s head of economics and strategy, said.
Given the current state of the market, “we don’t think cuts are prudent at this time, and we’ve made that clear,” a US National Security Council official told Reuters on Sunday.
Outside of regular business hours, Insider issued a comment request to the White House, but they did not react right away.
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Source: Business Insider