Oil surges after OPEC+ makes unexpected crude production cut

Oil surged at the week’s open after OPEC+ unexpectedly announced crude output cuts on Sunday, with Saudi Arabia leading the way with 500,000 barrels a day of reductions from May.

West Texas Intermediate rose above $81 a barrel, extending two weeks of gains as expectations of a tighter market added to easing concerns over a global banking crisis. The Organization of Petroleum Exporting Countries and allies pledged to make production cuts starting next month that will exceed 1 million barrels a day. The market had expected OPEC+ to hold output steady.

Aside from a reduction from Saudi Arabia and other Middle Eastern countries, Russia also said it would keep production at a reduced level. News of the cuts overshadowed relief from an agreement between Iraq’s semi-autonomous Kurdistan region and the federal government to resume oil exports through Turkey this week.

Read: Oil steadies after mixed US stockpile report signals weak demand

Crude is entering April after capping its worst first-quarter drop since 2020, when the pandemic pummeled demand. Futures whipsawed as traders weighed near-term risks from a banking crisis to strikes in France, although there is longer-term optimism over China’s rebound underpinning higher prices over the rest of the year.

#SaudiArabia to implement voluntary oil output cut of 500,000 bpd from May to year-end.#WamNews https://t.co/L8VHl997Dj

— WAM English (@WAMNEWS_ENG) April 2, 2023

“The new cut, if fully implemented by the group, should allow material inventory draws already in second quarter,” said Giacomo Romeo, an equity analyst with Jefferies. That’s ahead of the third quarter, as previously expected, he added.

Also read: UAE reduces fuel prices for April