Why did OPEC+ decide to reduce its crude supply and what are its consequences?

First modification: 04/03/2023 – 19:12

The surprise announcement by several members of the Organization of the Petroleum Exporting Countries (OPEC) that they were going to cut their production more than expected starting in May triggered prices per barrel on Monday by more than 5 dollars, to settle at around 85 dollars in the case of the reference WTI in the United States at the beginning of the trading day.

Among the main reasons for the cut in production are: concerns about weak world demand, expectations about lower prices and tensions between producing countries with Washington.

This group of countries, which controls 40% of the world’s oil supply, was on track to cut supply by two million barrels per day starting in May. However, several of its members have announced additional “voluntary” reductions, that is, without a binding agreement, which will apply until the end of 2023.

Saudi Arabia argued the move as a precautionary measure aimed at supporting market stability, due to concerns about the Western banking sector, which led investors to sell risky assets such as commodities.

This caused oil prices to fall to around $70 a barrel from a near all-time high of $139 in March 2022. Indeed, a global recession could lead to lower oil prices.

Other analysts said that OPEC+ was willing to put a floor on oil prices at $80 a barrel and that its strategy is to keep them at that level. World oil consumption is around 100 million barrels per day and the cut as of May is just over three million barrels, that is, 3% of demand.

Washington has called OPEC+’s latest move inadvisable, after repeatedly criticizing the group for “manipulating” prices and siding with Russia despite the war in Ukraine.

With Reuters and AP