Oil prices jumped on Monday following the shock announcement by members of OPEC of a drastic reduction in production in May, with the aim of raising prices after the recent fall.
In total, eight of the 23 participants in OPEC +, which brings together the Organization of the Petroleum Exporting Countries (OPEC) and its partners, have decided to contract their volumes of 1.16 million barrels per day, with in the first place Saudi Arabia.
The announcement completely misled the market, which had been expecting a status quo, with the Saudis having “signalled publicly and privately” until the meeting “that they had no intention of intervene for now,” Eurasia Group analysts said.
“They usually send out one or two test balloons” before the meeting, to test the reaction of the operators, recalled Andrew Lebow, of Commidity Research Group. “But this time it was the slap. »
The alliance took note of these “voluntary adjustments” to production on Monday, following a long-planned technical meeting by videoconference (JMMC). In unison with its members, it assured that it was “a precautionary measure aimed at supporting the stability of the oil market”.
But for analysts, it is above all a question of reaping additional “income”, commented in a note Jorge Leon, of Rystad Energy.
These cuts show that OPEC + will do everything to “defend a floor price well above $80 a barrel”, he says, heedless of criticism from the United States and other consumer countries, worried about runaway inflation.
Under the effect of the banking crisis, crude oil prices fell in March to their lowest in more than a year, “an unacceptable level for members of OPEC +”, explains to AFP Ibrahim al -Ghitani, oil market expert, based in the Emirates.
“Real reductions”
After this concerted action by the big producers of black gold, the market reaction was immediate: the two global benchmarks took off by around 8% at the start of the session, returning to their level before the turmoil in the banking sector.
The barrel of Brent from the North Sea, the main European benchmark, for delivery in May, closed up 6.30%, at 84.93 dollars.
As for West Texas Intermediate (WTI), the most followed American variety, also due in May, gained 6.27%, to 80.42 dollars.
Iraq, Algeria, Saudi Arabia, the United Arab Emirates, Oman, Kazakhstan, Kuwait and Gabon will therefore make significant reductions from next month until the end of 2023. They range from 500,000 barrels per day (bpd) for Riyadh to 8,000 bpd for Libreville.
Moscow, for its part, has extended its 500,000 bpd reduction measure until the end of 2023.
In total, the volume left underground will be “about 1.66 million barrels daily”, said OPEC +.
“Most of the cuts will be made by countries producing at or above quotas” set, implying “real supply cuts” and market tightening, DNB analysts pointed out.
Other countries could also “announce their own cuts if they deem it […] necessary”, according to the Deputy Prime Minister in charge of Energy Alexandre Novak, interviewed by Russian television Rossiya 24.
“It’s their business”
And unlike similar measures taken by OPEC + in the face of the pandemic or fears of recession, this time global demand for oil is increasing: China, the country greediest in black gold, reopens its economy after lifting health restrictions .
If the cuts actually reach the announced levels, “it will stretch an already tight market a little more”, warned Jorge Leon, who sees Brent going up to 110 dollars this summer.
This announcement comes on top of what had already been decided in October, namely a drop in volume of two million bpd. This was then the largest reduction since the emergence of Covid-19.
This is a new setback for Washington, which pleads for an opening of the black gold taps in order to contain prices, estimates Caroline Bain, of Capital Economics.
This drop in production “is not timely”, said John Kirby, spokesperson for the American National Security Council, who however sought to put the impact into perspective and indicated that the United States intended to continue to “work” with Saudi Arabia.
From a geopolitical point of view, these reductions also demonstrate “the group’s support for Russia”, which will thus benefit from better prices to offset the impact of Western sanctions, underlines Caroline Bain.
The Kremlin on Monday defended a decision taken “in the interest” of the world market, to maintain prices “at the right level”, according to the spokesman for the Russian presidency, Dmitry Peskov.
“Whether other countries are happy or not is their business,” he told reporters.