Oil prices set to surge following surprise OPEC+ output cut

OPEC+ nations on Sunday announced a production cut of more than 1 million barrels per day (bpd) and oil prices are expected to jump on Monday following the surprise move.

Saudi Arabia led the OPEC+ by announcing 500,000 bpd supply reduction on Sunday. Iraq, UAE and Kuwait will reduce production by 211,000 bpd, 144,00 bpd and 128,000 bpd respectively. Russia said the 500,000 bpd production cut it was implementing from March to June would continue until the end of the 2023.

According to Dan Pickering, Chief Investment Officer of Pickering Energy Partners, oil prices will surge $5-10 per barrel over the next while. Now the speculation will move toward whether the US will release more SPR (Strategic Petroleum Reserve) barrels, Pickering tweeted.

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.