Surprise Crude Production Cut Pushes Markets Higher
April 4, 2023
Crude oil prices rose by more than 6% yesterday upon the surprising news that OPEC + was going to make additional voluntary cuts to oil output for May through December of 2023 in addition to their already agreed upon 2 million bpd oil cuts this year. The additional voluntary oil output cuts from OPEC+ amount to 1.66 million bpd for a total of 3.66 million bpd starting in May. Saudi Arabia lead the way with 500,000 bpd of oil cuts, Iraq with 211,000, United Arab Emirates 144,000, Kuwait 128,000, Kazakhstan 78,000, Algeria 48,000, Oman 40,000, and Gabon 8,000 and Russia volunteering 500,000 bpd added up to 1.66 million bpd of additional voluntary oil output cuts.
The market reacted to these headlines and all the markets finished higher on the day. It will be interesting to see where the market goes from here. Some see these action as a retaliation to US who said they would refill the SPR at 70 and when it got there did not do it. This was supposed to be a support level for crude oil. This is also a sign that OPEC+ is concern about demand as we move further into the year. The market will have to wait and see how all this plays out as we move through the year. OPEC+ has been producing below their quotas and one has to wonder if some of these cuts are to get more in line with actual production levels. Time will tell. Prior to OPEC+ announcement the outlook was for there to be a crude surplus in the back half of the year. Now with OPEC+’s announcement and assuming they follow through on it that outlook has switched to a deficit in the back half of the year. There are still two big factors that will impact price moving forward. One, is will the US have a recession, and two is will China’s recover from the pandemic mean strong energy demand.