BAKU, Azerbaijan, April 10. The decision to cut oil production was taken by eight members of OPEC+, which is a new configuration, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris) told Trend.
“Several oil producing and exporting countries decided to consider further oil production cuts in March due to the bearish impact of the financial crisis on crude prices. At some point Brent prices briefly fell to about $70 per barrel. Such a level is too low for several oil countries and some of them were afraid that the fall could go on to much lower levels. These producers would like oil prices to be at least $80/b or a little more. Eight OPEC+ countries (Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Algeria, Gabon, Kazakhstan and Oman) announced on 2 April that they would reduce their production by 1.16 million barrels per day (Mb/d) from May and until the end of this year. The share of Saudi Arabia is 500,000 b/d,” he said.
Perrin said it is important to stress that it is not an OPEC+ decision.
“OPEC+ is a coalition of 23 countries which was set up at the end of 2016. OPEC is an organization of 13 countries which was set up in 1960. Every OPEC member state is part of the OPEC+ coalition. The announcement of 2 April is thus very surprising for at least two reasons: first, it was not anticipated by the markets; second, it was not a decision taken by these 23 countries but by 8 of them. It is a new configuration. The impact on oil prices was rapid and strong. On 3 April Brent and West Texas Intermediate (WTI) prices surged by about five dollars per barrel. Brent price (June 2023 contract on ICE Futures in London) is now at $85/b, which is exactly what these producers were expecting. So far mission accomplished. It remains to be seen if these eight countries will totally deliver on their commitments but there is no doubt that world oil production will be reduced as a consequence of this decision,” the expert said.
He recalled that previously, in February, Russian officials said that the production of their country would be reduced by 500,000 b/d from March.
“And, before that, OPEC+ decided in October 2022 to cut its production by 2 Mb/d from November 2022 and until end 2023. These cuts are not at all well appreciated in Washington. The Biden Administration did not hesitate to exert pressure on OPEC and OPEC+ several times since 2021 and it was very upset by the OPEC+ decision adopted in October 2022. As far as the 2 April 2023 decision is concerned the U.S. authorities said that ''we don't think cuts are advisable at this moment given market uncertainty''. A very moderate reaction so far.
All these cuts mean that the world oil market will be rather tight this year. According to the International Energy Agency (IEA), world oil demand is expected to rise by 2 Mb/d in 2023 and world oil supply by 1.6 Mb/d. These projections were published before the recent decision by these eight OPEC+ countries. The second half of this year should thus be difficult for the world oil demand/supply balance, which could help producers to maintain high oil prices throughout the year,” the expert explained.