The Organization of the Petroleum Exporting Countries (OPEC) has suddenly announced that it intends to further cut oil production by about 1.1 million barrels per day. Thus, she joined Russia, which has already reduced production by 500,000 barrels since March. Together with Russia, the cumulative reduction in production will amount to 1.6 million barrels per day. The announcement immediately raised oil prices, Brent benchmark quotes rose by more than 8% and are currently trading at $84.2 per barrel against $79 last week. Bloomberg notes that OPEC's decision came as a surprise to the market, none of the analysts surveyed expected such a sharp cut in production from the cartel.
As expected, Saudi Arabia has become the leader of OPEC cuts, as it intends to reduce production by 500,000 barrels per day similar to Russia's. Commenting on the decision of OPEC, the representative of Riyadh said that it is necessary to stabilize the oil market. Iraq will reduce its production by 211 thousand barrels per day, the UAE will reduce its production by 144 thousand, Kuwait – by 128 thousand, Kazakhstan – by 78 thousand, Oman (40 thousand) and Algeria (48 thousand) will share the remaining capacities.
“OPEC+ clearly wants a higher price. The cartel is proactive in trying to wrest prices from the grip of macroeconomic sentiment,” commented consultant and senior manager at Black Gold Investors hedge fund Gary Ross.
OPEC's decision caused another wave of indignation in the United States. The agency notes that Riyadh's tough stance could become a new reason for growing tensions in bilateral relations between the kingdom and the United States. Washington, in a short message, said that he sees no reason to cut production right now and considers this decision untimely. Experts also note that for Riyadh itself, a sharp increase in oil prices is unprofitable in the light of attempts to diversify its own economy. The Kingdom is investing huge amounts of money to turn the country into a major regional business and tourist center.
The rise in oil prices may provoke a new wave of inflation in developed countries, which the world's central banks have been actively fighting for more than a year now. A new jump in prices may provoke more stringent measures by regulators around the world, which in turn may push the leading economies into recession, then world oil prices will be lowered out of completely different fears, experts say. Russia, for which the growth of quotations is an opportunity to partially eliminate a record budget deficit against the backdrop of a ceiling in oil prices and all kinds of restrictions imposed in response to the invasion of Ukraine, will definitely be able to extract the momentary benefit from the OPEC decision.
Nevertheless, some analysts urge the market to calm down, as the real production cut will actually be two times lower than announced. Analysts at RBC Capital Markets note that the countries listed in the reduction did not use their quotas to the maximum before the new decision, so the real reduction after the recent decision will be about 800,000 barrels per day. However, many investment houses are not impressed by such estimates, they are already increasing their forecasts for the price of oil at the end of the year up to $100 per barrel.