As trading began for this week, the price of oil soared upward across the globe as OPEC+ member countries suddenly announced a reduction in overall output. This is a highly critical development for the global economy, given how the recent slowing of price data in the United States sparked wary optimism in the economic sector.
According to a Texas-based investment firm Pickering Energy Partners representative, this most recent round of output cuts made just before an online meeting of an OPEC+ ministerial panel that includes both Russia and Saudi Arabia could raise the price of oil by around $10 per barrel.
An OPEC+ representative stated that overall output would be reduced by approximately 1.16 million barrels of crude per day. Saudi Arabia, in particular, is set to impose the most significant reductions, curtailing its production quota by around 500,000 barrels a day.
Following the announcement, the price of Brent oil futures surged to around $8383 per barrel, while US crude jumped to around $79.51.
Likewise, investment firm Goldman Sachs revised its Brent forecast to around $95 per barrel by the end of this year and around $100 each by 2024. According to a spokesperson for Goldman Sachs, this surprise announcement is consistent with OPEC+’s recent mandate about acting preemptively just because they can and also because they could do so without repercussions adversely affecting its market share. It may have come out of nowhere, but experts say it is a reflection of a number of economic and possibly political considerations.
OPEC+’s shock announcement cast a damper over the slower reading for US core inflation on Friday, March 31st, which enabled Wall Street to end the month on a high note.
This is far from the last time that OPEC+ suddenly curtailed its output. Just last October, the oil producers’ cartel opted to reduce its total output by around two million barrels a day beginning November, lasting well towards the end of 2022. It was a move that drove the US government to speak harshly against OPEC+ and caused global oil prices to surge.
A Serious Reduction
For energy analyst Vivek Dhar of the Commonwealth Bank of Australia (CAB), the two largest OPEC+ nations’ involvement in the aforementioned ministerial panel can have bleak implications for global oil markets by the middle of the current quarter.
Dhar explained that around 1% or more of the world’s total oil supply could be curtailed beginning in May of this year.