The consequences were not long in coming. Oil prices jumped on Monday, April 3, after the surprise announcement on Sunday by several major exporting countries of a reduction in their production, presented as a “precautionary measure” to stabilize the market.
In the first exchanges in Asia, the price of a barrel of American WTI (West Texas Intermediate) rose by 5.74% to 80.01 dollars (about 74 euros), and that of a barrel of Brent from the North Sea by 5. 67% to 84.42 dollars (about 78.10 euros). The New York Stock Exchange opened in dispersed order on Monday, worried about soaring oil prices which poses a new threat to the economy, likely to revive inflation. The Dow Jones index advanced by 0.36%, but the Nasdaq, with strong technological coloring, yielded 0.62% a few minutes after the opening, and the broader S&P 500 index yielded 0.08%.
This cut of around one million barrels per day (bpd) will begin in May, and will last until the end of 2023. It looks like this, according to the respective official news agencies of each country:
- Saudi Arabia: 500,000 bpd less;
- Iraq: 211,000 bpd less;
- United Arab Emirates: 144,000 bpd less;
- Kuwait: 128,000 bpd less;
- Algeria: 48,000 bpd less;
- Oman: 40,000 bpd less;
These declines occur “in coordination with certain OPEC and non-OPEC member countries”according to the Algerian Ministry of Energy.
Biggest drop in production since October
These announcements were made as a videoconference meeting of the Joint Ministerial Monitoring Committee (JMMC), a panel of the Organization of Petroleum Exporting Countries and their allies (OPEC+) is to be held on Monday.
In February, JMMC members had “reaffirmed their commitment” to enforce the agreement decided in October, namely a drastic cut in their production of two million barrels per day to support prices. This was then the largest reduction since the start of the Covid-19 pandemic.
This new drop in production, which comes on top of the one decided in October, comes despite calls from the United States to increase the number of bpd, against a backdrop of galloping inflation while China, the most gold-hungry country black, is reopening its economy after turning inward during the Covid-19 pandemic.
The October announcement was seen as a snub by Washington, which feared a surge in fuel prices against a background of high inflation.
Period of “uncertainties”
This new cut “comes after oil prices hit a two-year low in March (…) at less than 80 dollars for the barrel of brent, an unacceptable level for the members of OPEC+”, explains to Agence France-Presse (AFP), Ibrahim Al-Ghitani, expert in the oil market, based in the Emirates. Discounts “will change market mechanisms and support prices beyond their current level”he assures.
Oil demand is threatened by “the prospect of high inflation and recessionary pressures”, reports Yesar Al-Maleki, analyst at the Middle East Economic Survey, also questioning the turmoil caused by the bankruptcy of the American bank SVB and the rescue of Credit Suisse. If the new drop “is not entirely unexpected”says the expert, she “has an element of surprise, in terms of volumes”because these “in addition to the two million bpd cut agreed in October 2022 and extended until the end of 2023”.
Moscow, a member of OPEC+, has thus announced – through its Deputy Prime Minister for Energy, Alexander Novak – to continue to reduce its crude oil production by 500,000 bpd until the end of the year. Mr Novak referred to a period of“uncertainty” on the black gold market, calling the drop in production a“responsible and preventive action”. It’s about a “precautionary measure to support the stability of the oil market”said a senior official of the Saudi energy ministry, quoted by the Saudi press agency SPA.
The Emirati Minister of Energy, Souhail Ben Mohammed Al-Mazrouei, spoke about “a voluntary initiative”, according to the official Emirati news agency, WAM. The same terms were more or less taken up by the Algerian Ministry of Energy, for whom the drop is a “voluntary reduction” and one ” precautionary measure “according to the Algerian press agency APS.
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OPEC, created in 1960 and based in Vienna, aims to “coordinate oil policies” of its members to ensure “fair and stable prices for producers”. It formed OPEC+ by including new allies, including Russia and Oman.