A general view shows a local oil refinery during sunset in Omsk, Russia, on March 16, 2022. (Alexey Malgavko/Reuters)
Saudi Arabia and other members of the oil-producing group OPEC+ announced on April 2 that they will be cutting their output by about 1.15 million barrels per day (bpd), a move expected to cause an immediate rise in prices.
According to its state news agency, Saudi Arabia will voluntarily cut its oil production by 500,000 bpd from May to the end of 2023. The Middle Eastern kingdom’s energy official described the decision as a “precautionary measure” aimed at “supporting the stability of the oil market.”
Russia, which has already been reducing oil production by 500,000 bpd since March in response to Western countries’ price caps designed to curtail the Kremlin’s ability to finance its military campaign in Ukraine, also confirmed that it will be extending the original three-month cut by another six months.
“As responsible and preemptive actions, Russia will extend its voluntary oil production reduction by 500,000 barrels a day until the end of 2023 from the average production level in February established in conformity with independent sources,” Russian Deputy Prime Minister Alexander Novak said, per state-owned TASS.
Other OPEC+ members also followed suit. Iraq announced a cut of 211,000 bpd, followed by the United Arab Emirates (144,000 bpd), Kuwait (128,000 bpd), Kazakhstan (78,000 bpd), Algeria (48,000 bpd), and Oman (40,000 bpd).
The collaborative production cuts come after oil prices in March fell toward a 15-month low at $70 a barrel, largely driven by worries that the ongoing global banking crisis would—as did the 2008–2009 financial crisis—spur a severe drop of global oil demand.
West Texas Intermediate, a U.S. benchmark for crude oil, in mid-March fell below $70 a barrel in the wake of the collapses of California-based Silicon Valley Bank and New York’s Signature Bank. International benchmark Brent Crude also dropped to its lowest point since December 2021, $71.46 per barrel.
Both benchmarks rose this week as concerns of a potential global banking meltdown eased.
OPEC’s decision is also built on what was agreed among its members and allies last October at a meeting in Vienna, including output cuts by 2 million bpd from November until the end of the year.
The Biden administration, which has been advocating for more oil to the global market since Russia began a full-scale military offensive against Ukraine, was upset by the oil-producing cartel’s plan.
“The President is disappointed by the shortsighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine,” the White House stated. “At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices.”
Global oil demand in 2023 is about 100.9 million bpd, according to the latest short-term energy outlook by U.S. Energy Information Administration. With the April 2 announcement, the total volume of cuts by OPEC+ accounts for more than 3 percent of global demand.