Surprise OPEC+ Announcement Thrusts Oil Higher

Opec+ made the surprise announcement Sunday to “voluntarily” cut production by 1.157mn bpd, effective from May. Russia said its 500,000 bpd cut – first launched in March – would be extended until the end of the year.

• The move marks a sign that Opec+ looks set on defending $80/bbl oil after a recent sell off because of banking fears.
• The pledges bring the total volume of cuts by OPEC+ to 3.66 million bpd according to Reuters calculations, equal to 3.7% of global demand.
• The unexpected decision was announced just a day ahead of Monday's meeting of Opec+'s joint ministerial monitoring committee (JMMC), where numerous sources had said the current production cuts of2mn bpd were expected to remain in place.
• Saudi Arabia will cut by 500,000 bpd, matching the unilateral cut announced earlier by Russia. Iraq – which is already facing export challenges relating to volumes from its semi-autonomous region of Kurdistan will cut by 211,000 bpd, the UAE by 144,000 bpd and Kuwait by 128,000 bpd. Kazakhstan's cut will be 78,000 bpd, Algeria's 48,000 bpd, Oman's 40,000 bpd and Gabon's 8,000 bpd.
• It is worth noting that while these voluntary Opec+ cuts run to year end, they are much easier to reverse early should fundamentals require.
• The official Saudi Press Agency (SPA) quoted an energy ministry official emphasizing that the cut was "a precautionary measure aimed at supporting the stability of the oil market."
• A number of OPEC+ members have been struggling to hit their current targets meaning the updated ones may not require much effort to achieve.
• Oil prices have spiked by over 5% so far today in response.