OPEC output cuts to roil markets, little room for others to respond

OPEC output cuts to roil markets, little room for others to respond

03 Apr 2023 03:11

April 2 (Reuters) – A surprise production cut by Saudi
Arabia and other Middle East producers has caught the energy industry flat-footed and will lift global prices with little room for a coordinated response by oil-consuming nations, industry executives said on Sunday.

The group had been largely expected to stick to its already agreed upon 2 million barrel per day (bpd) cuts when its joint ministerial panel, which includes Saudi Arabia and Russia, meets on Monday. The OPEC move and Russia's extension through year-end of cuts was a coordinated effort that signaled the OPEC+ remains in charge of global markets.

Comments:

Dan Pickering, Co-founder, Pickering Energy Partners:

"It’s a meaningful surprise. There was no chatter about this pre-meeting which there usually is. Probably an indication of concern around demand and what’s happening here in the U.S. around the banking crisis. It will firm prices meaningfully.
We’ll have less supply in the market, a market that was not expecting it. We’ll probably get a $10 move in crude.

"The number of options that governments around the world have to moderate a price impact are becoming more limited. It’ll be the free market that does it. There will be potential demand reductions associated with price. If prices were to run to $100, $120 (per barrel) level again, then we could see the same demand destruction as when U.S. gasoline went to $5/gallon. That’s the way the market is going to offset these production cuts, through price and demand. Unlikely to be through increasing strategic
SPR releases."