Oil prices rise after OPEC’s surprise cuts, analysts warn of $100 per barrel
- Oil prices rose as much as 8% at the open after OPEC+ announced it was cutting production by 1.16 million barrels per day.
- “OPEC+’s plan for further production cuts could push oil prices back towards $100,” CMC Markets analyst Tina Teng told CNBC.
Oil storage tanks stand at the RN-Tuapsinsky refinery, operated by Rosneft Oil Co., at night in Tuapse, Russia.
Andrey Rudakov | Bloomberg | Getty Images
Oil prices rose as much as 8% at the open after OPEC+ announced it was cutting output by 1.16 million barrels per day.
Brent crude futures were last up 5.07% at $83.95 a barrel on the news, and US West Texas Intermediate crude futures were up 5.17% at $79.59 a barrel.
The voluntary cuts will start from May until the end of 2023, Saudi Arabia announced, saying it was a “precautionary measure” aimed at stabilizing the oil market.
The move comes on the back of Russia’s decision to cut oil production by 500,000 barrels per day until the end of 2023, according to the country’s Deputy Prime Minister Alexander Novak.
Other member states have also pledged respective cuts, with OPEC kingpin Saudi Arabia cutting 500,000 bpd and the UAE cutting 144,000 bpd, among cuts from Kuwait, Oman, Iraq, Algeria and Kazakhstan.
“OPEC+’s plan for further production cuts could push oil prices back towards $100, given China’s reopening and Russia’s production cuts in retaliation to Western sanctions,” CMC Markets analyst Tina Teng told CNBC.
The logo of OPEC is pictured at the OPEC headquarters on October 4, 2022. Last October, the oil cartel announced its decision to cut production by two million barrels per day.
Joe Klamar | Afp | Getty Images
However, Teng noted that the cut could also reverse the fall in inflation, which would “complicate central banks’ interest rate decisions”.
In October last year, the oil cartel announced its decision to cut production by two million barrels per day. The White House said at the time that President Joe Biden was “disappointed by the short-term decision by OPEC+” to cut production quotas while the world was still grappling with the war in Ukraine.
“But unlike [the cut in October]the momentum for global oil demand is up, not down with a strong China recovery,” Goldman Sachs said in a note.
That could raise Goldman’s Brent forecasts by $5 a barrel to $95 a barrel for December 2023, the investment bank said in a note after the surprise overnight decision.
Analysts led by Daan Struyven of Goldman Sachs said the surprise cut is “consistent” with OPEC+’s doctrine of acting preemptively.
In March, oil prices fell to their lowest since December 2021, as traders feared the bankruptcy could slow global economic growth.
The oil cartel and its allies are looking to avoid a repeat of the 2008 crash, one analyst said.
“They’re looking into the second half of this year and deciding they don’t want to relive 2008,” said Bob McNally, president of Rapidan Energy Group, citing oil prices that crashed from $140 to $35 in six months that year.
McNally added that while it is not his base case, oil prices “could make a dent at $100 … if Chinese demand returns to 16 million bpd in the second half of this year [and] if Russian supply starts to go off because of sanctions and so on.”