Energy markets were bracing for a volatile open late Sunday, after Saudi Arabia led a surprise oil production cut across several OPEC + nations that will remove more than one million barrels of oil a day from May.
In an announcement on Sunday, Saudi Arabia’s Ministry of Energy stated that the kingdom will implement a voluntary cut of 500,000 barrels a day from May until the end of 2023, in conjunction with other countries.
It said that the “voluntary cut is in addition to the reduction in production” agreed at the OPEC meeting in October and “is a precautionary measure aimed at supporting the stability of the oil market.” OPEC+ agreed in October to cut production by 2 million barrels a day from November, a move that angered the Biden administration.
Russia’s deputy prime minister, Alexander Novak, said his country would extend a March production cut of 500,000 barrels a day through the end of the year. OPEC+ is made up of members of the Organization of the Petroleum Exporting Countries and its allies, including Russia.
“Today, the world oil market is experiencing a period of high volatility and unpredictability due to the ongoing banking crisis in the U.S. and Europe, global economic uncertainty and unpredictable and shortsighted energy policy decisions. At the same time, predictability in the global oil market is a key element in ensuring energy security,” Novak said in a statement.
The cuts come after a first quarter that saw a sharp decline in crude prices.
Front-month West Texas Intermediate crude for May delivery
CL.1,
which ended at $75.678 a barrel on Friday, suffered a March loss of 1.8% and a quarterly decline of 5.7%, according to Dow Jones Market Data. Brent crude
BRN00,
the global benchmark, fell 4.9% in March and 7.2% in the first quarter, ending Friday at $79.77 a barrel.
Elsewhere, Kuwait’s oil ministry said the country will cut 128, 000 barrels a day, while the United Arab Emirates said it would cut its production by 144,000 barrels a day, according to a statement by Energy Minister Suhail Al Mazrouei, reported by Attaqa Breaking News. Oman said it would implement a voluntary cut of 40,000 barrels a day. Kazakhstan said it would cut by 78,000 barrels a day and Algeria said it would cut by 48,000 barrels a day.
Ole Hansen, chief commodities strategist at Saxo Bank, said the announcement “came out of the blue.”
“Producers were clearly pi…ed of by the recent slump which was speculative more than fundamentally driven. They will likely achieve a return to the $80s while also trying to pre-empt a smaller than expected increase in global oil demand in the coming months. Remember most of the +2 m b/d increase expected for this year is backloaded into the second half with plenty of room for error should economic slowdown be as severe as currently priced in by the market through expectations of U.S. rate cuts,” Hansen told MarketWatch.
“The Saudi oil minister love[s] to wrong foot the market, especially when it comes to hurting speculative short sellers,” said Hansen.
The move also comes as the U.S., Europe and elsewhere continue to battle inflation. Oil prices have fallen sharply over the last 12 months, after spiking to more than $120 a barrel following Russia’s invasion of Ukraine last year. Brent was down roughly 24% from a year earlier at Friday’s close.