OPEC+ Shocks the Global Oil Market - Apr 3

[dan_s]

Oil Price.com: Oil Prices Soar As OPEC+ Shocks The Market
By Irina Slav - Apr 03, 2023, 12:30 AM CDT

On Sunday, OPEC+ announced a surprise production cut of some 1.66 million barrels per day, increasing the total OPEC+ cut to 3.66 million bpd. < IMO this raises the question of how much spare production capacity that OPEC really has.
Oil prices soared on the news, climbing by 8% initially before falling back slightly.
The U.S. criticized the move, saying that it wasn’t wise to make cuts given the current market uncertainty.

OPEC+ on Sunday surprised oil markets with an announcement that it will reduce its output further, by some 1.66 million barrels daily.

Reuters noted in a report that with the new cut, the total output reduction amount from OPEC+ will come in at 3.66 million barrels daily, or 3.7% of global oil demand.

The Financial Times reported that oil prices had gained 8% immediately after the announcement, noting Saudi Arabia’s share of the cuts would be almost half of the total, at 500,000 bpd.

Russia, meanwhile, said it would extend the production cuts of 500,000 bpd it announced earlier this year until the end of 2023.

The FT noted the unusual nature of the announcement as it was made outside the group’s regular monthly meetings, the next of which is taking place today.

The U.S. administration expectedly criticized the move, saying it was not the time to cut production.

“We don’t think cuts are advisable at this moment given market uncertainty — and we’ve made that clear,” a spokesperson for the National Security Council said, as quoted by The Hill. < Saudi Arabia's response: "No one cares what Team Biden thinks!"

“But we’re focused on prices for American consumers, not barrels, and prices have come down significantly since last year, more than $1.50 per gallon from their peak last summer,” the spokesperson, who was not named in the Hill report, added.
The move by OPEC+ to curb production further came after the sharp drop in oil prices last month, largely driven by concern about the banking industry after a couple of sizeable bank collapses in the United States.

The events sparked concern about the stability of the Western banking system, reinforced by the near-death experience of Credit Suisse, and fear of a recession that would affect oil demand.

"OPEC is taking pre-emptive steps in case of any possible demand reduction," Energy Aspects’ Amrita Sen told Reuters.

[dan_s]

Trading Economics:
"WTI crude futures jumped to as high as $81.7 per barrel on Monday, an intraday level not seen since late January, before paring some gains and hovering around $79.8 as investors digested a surprise production cut of more than 1 million barrels a day by OPEC+. This move complicates the outlook for inflation and interest rates, as investors had been betting that easing price pressures would give central banks room to pause the current tightening cycle. Meanwhile, an initial agreement has been reached to resume oil exports through Ceyhan this week, after a dispute involving Kurdish authorities halted exports of around 400,000 barrels a day from the Ceyhan port in Turkey. On the demand side, investors remain optimistic about China’s recovery, with PetroChina and Cnooc recently saying a rebounding domestic economy can help cushion the impact of slower global growth."

With WTI now back to the top of the trading channel ($74 to $81) it is likely that we will see some profit taking by the longs (many are computer generated sell orders). What oil prices do this afternoon will be more important.