Prices Soar Following OPEC+ Decision To Cut Output

OPEC+ announced a surprise output cut of 1.1mbd on Sunday, the day before it is due to meet. The market was closed for the announcement but prices jumped over 6% at the Asian open. On Friday Brent closed at just under $80/bbl at $79.89 and is now around $86. In October OPEC+ cut quotas 2mbd and following this the Nigerian Minister of State for Petroleum Resources said that the alliance wanted prices around $90.

• Brent finished March up almost 10% from its trough after the banking situation stabilised. The market has been moving between concerns regarding recession, especially in the US, and optimism regarding a pickup in demand from China, which has been slow to materialise. The recovery in crude prices in the second half of March doesn’t seem to have been enough for OPEC.
• Saudi Arabia will cut 500kbd and it is said that it led Sunday’s decision. It is widely believed that it needs a higher oil price to implement its plans to transform the economy into other areas. Russia also said that it will extend its output cut from June to the end of 2023. Kuwait, UAE and Algeria will also reduce supply.
• The decision will exacerbate strained relations between the US and Saudi Arabia. Central bankers are also unlikely to be pleased as it makes the job of bringing inflation down even harder.