OPEC+ announces surprise oil production cuts

DUBAI, April 2 (Reuters) – Saudi Arabia and other OPEC+ oil producers on Sunday announced further cuts in their output of around 1.16 million barrels per day in a surprise move that analysts said would lead to an immediate rise in prices.

The development comes a day before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia, and which had been expected to stick to the 2 million bpd of cuts already in place until the end of 2023.

Oil prices fell last month to $70 a barrel, the lowest in 15 months, amid concerns that a global banking crisis would hit demand. Still, no further action from OPEC+ was expected to support the market after sources downplayed that prospect and crude oil rallied towards $80.

The latest cuts could boost oil prices by $10 a barrel, the head of investment firm Pickering Energy Partners said on Sunday, while oil broker PVM said it expected an immediate jump when trading starts after the weekend.

“I expect the market to open several dollars higher … possibly as much as $3,” said PVM’s Tamas Varga. “The move is unreservedly bullish.”

Sunday’s pledges bring the total volume of cuts by the Organization of the Petroleum Exporting Countries, Russia and other allies to 3.66 million bpd, according to Reuters calculations, equivalent to 3.7% of global demand.

“OPEC is taking preemptive steps in case of any demand reduction,” Amrita Sen, founder and director of Energy Aspects, said on Sunday.

The Saudi Energy Ministry said the kingdom’s voluntary cuts were a precautionary measure aimed at supporting stability in the oil market.

Last October, OPEC+ agreed to a 2 million bpd output cut from November until the end of the year, a move that angered Washington as tighter supply pushes up oil prices.

The United States has argued that the world needs lower prices to support economic growth and prevent Russian President Vladimir Putin from earning more revenue to finance the war in Ukraine.

Sunday’s unexpected voluntary cuts start from May and last until the end of the year.

SAUDI MOVE

Top OPEC producer Saudi Arabia said it would cut production by 500,000 bpd while Iraq will reduce production by 211,000 bpd, according to official statements.

The UAE said it would cut output by 144,000 bpd, Kuwait announced a cut of 128,000 bpd while Oman announced a cut of 40,000 bpd and Algeria said it would cut output by 48,000 bpd. Kazakhstan will also cut production by 78,000 bpd.

Russian Deputy Prime Minister Alexander Novak also said on Sunday that Moscow would extend a voluntary cut of 500,000 bpd until the end of 2023. Moscow announced these cuts unilaterally in February after the imposition of Western price caps.

An OPEC+ source said Gabon would make a voluntary cut of 8,000 bpd and that not all OPEC+ members joined the move, as some are already pumping well below agreed levels due to a lack of production capacity.

After Russia’s unilateral reductions, US officials said the alliance with other OPEC members was weakening, but Sunday’s move shows cooperation remains strong.

Reporting by Maha El Dahan, Ahmed Rasheed, Dmitry Zhdannikov and Adam Makary Additional reporting by Alex Lawler, Ahmad Ghaddar and Gary McWilliams Writing by Alex Lawler Editing by Hugh Lawson, Sharon Singleton and Philippa Fletcher

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