Crude is back in the news following a shock
oil output cut from major producers in the OPEC+ group. WTI crude futures (
CL1:COM) surged past $81 a barrel at the open to its highest price since late January, with the May contract
rallying as much as 8%, while June Brent crude (
CO1:COM) opened at its best level in nearly a month, advancing by the same percentage to over $86/bbl. The decision comes as the U.S. is still entangled in an environment of high inflation, and has the potential to upend economic policies, as well as monetary decision-making like upcoming Fed rate hikes.
Bigger picture: The output reduction will be led by OPEC kingpin Saudi Arabia, with total production cuts
totaling nearly 1.2M bbl/day - that will start in May and last until the end of 2023. Russia's recent production cuts of 500K barrels per day were also extended, and add to the 2M bpd that were taken offline by OPEC+ in October. Together, both rounds of cuts mean that 3% of the world's oil has been removed from the market in the past half a year, helping sustain prices following U.S. actions against Russian crude like
sanctions and a
price cap.
Goldman Sachs changed its
oil production and price forecasts on the latest announcement, which comes before the busy summer travel season. "Winners from the OPEC+ cuts include Saudi Arabia, Warren Buffett and EV manufacturers, while losers include airlines and hopes for an economic soft landing,"
Logan Kane writes in a
new analysis published on Seeking Alpha. It also comes amid an "ongoing chess match between the Biden administration and the Kingdom of Saudi Arabia," with reports suggesting that Washington angered Riyadh by
declining to refill the Strategic Petroleum Reserve when crude oil prices were low, so the Kingdom "decided to get some payback." See
Saudis say depleting oil reserves could 'become painful in the months to come' Go deeper: Following some
rushed diplomacy ahead of his trip to the Middle East last summer, President Biden finally met with Saudi Crown Prince Mohammed bin Salman after previously pledging to make a "pariah" out of the Kingdom over the killing of U.S.-based columnist Jamal Khashoggi. There was an apparent understanding that the summit and a notable fist bump would lead to additional Saudi crude production, but things continue to be going the opposite way despite reported assurances. Riyadh first
scrapped a paltry bump to OPEC+ production of 100K bpd on Sept. 5, while a month later deepened its cuts by a
whopping 2M barrels per day, and will now take another 1.2M barrels offline. The Saudis have painted the move as a "precautionary measure aimed at supporting the stability of the oil market," while the U.S. doesn't think cuts are "advisable at this moment given market uncertainty - and we've made that clear." Check out
Saudi Aramco racks up record $161B profit for 2022 (
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