OPEC to cut oil production

 

OPEC+ announced that it plans to cut oil production by over 1 million barrels per day. The surprise decision will likely raise global oil prices and may generate inflationary pressures that could force central banks to maintain elevated interest rates.

  • Saudi Arabia and Russia announced the largest production cuts followed by Iraq and the UAE.
  • Cumulatively, the cuts will reduce the global oil supply by about 1.1 million barrels per day from the beginning of May.
  • The supply reduction will rise to 1.6 million barrels per day from July due to additional cuts in Russia.
  • Helima Croft, head of commodity strategy at RBC Capital Markets, estimates that core OPEC producers will only reduce oil supply by about 700,000 barrels per day.
  • All analysts and traders surveyed by Bloomberg before the announcement expected OPEC+ production levels to remain constant.
  • The price of West Texas Intermediate jumped by as much as 8% on Monday, following news of the cut. 

  • The latest decision is likely to worsen relations between Washington and Riyadh, which deteriorated after Biden traveled to Saudi Arabia in July last year to convince the kingdom to boost its crude production.
  • In October, OPEC+ announced plans to cut oil production by 2 million barrels per day, prompting Washington to warn that Saudi Arabia would face "consequences."

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