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Oil price bounce back in early trading as OPEC+ agree cuts
The OPEC+ agreement is an attempt to stabilize the market and prevent prices from falling too low.
OPEC+ Agrees to Cut Oil Production
Leaders of the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) have agreed to cut oil production by 3.6 million barrels per day (bpd) starting in July. Saudi Arabia, the world’s largest oil producer, will lead the way by cutting its output by 1 million bpd.
The decision comes as oil prices have been on a downward trend in recent months. The OPEC+ agreement is an attempt to stabilize the market and prevent prices from falling too low.
Saudi Arabia is the only country in the OPEC+ zone with the capacity to store excess supply. This gives the kingdom a significant advantage in negotiations with other OPEC+ members.
Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, described the decision as a “Saudi lollipop.” He said that the cut would help to “sweeten” the market and make it more attractive for investors.
The OPEC+ agreement is a significant development in the oil market. It remains to be seen whether the cut will be enough to stabilize prices and prevent a further decline.
In his words
- “We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do… This market needs stabilization”
However, the cuts didn’t affect countries like Nigeria, Angola, and Russia which the group lowered targets.
Nigeria has failed to meet its OPEC production quota of 1.75 million bpd. Last month, the country’s oil production stood at 1.65 million bpd. Insecurity in the Niger Delta and oil theft have led to consistent shortfalls in oil production.
On the other hand, the UAE was allowed to raise its production by 200,000 bpd to 3.22 million bpd.
OPEC’s recent move comes on the heels of a slump in oil prices in May. While the commodity’s price in April spiked by $9 in response to surprise cuts, prices have remained stagnant and necessitated a decision from OPEC and its allies.
OPEC+ Oil Production Cuts Lead to $1 Jump in Oil Prices
The Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) announced a production cut of 3.6 million barrels per day (bpd) on Monday. The cut, which represents 3.6% of the global oil supply, is expected to tighten the market and boost prices.
In early trading on Tuesday, oil prices rose by $1 per barrel. Brent crude futures rose to $77.15 per barrel, a 1.3% increase. U.S. West Texas Intermediate (WTI) crude futures rose to $72.76 per barrel, a 1.4% increase.
The OPEC+ decision indicates that the group is committed to supporting oil prices. The cuts are expected to last for 12 months, and the group could extend them if necessary.
The rise in oil prices is good news for oil producers, but it could put upward pressure on inflation. How the market will react to the OPEC+ cuts in the long term remains to be seen.
Industry experts said OPEC+ moves indicate the group’s move to shore up the price of its exports. Amrita Sen, co-founder of Energy Aspects speaking to Reuters said
- “It is a clear signal to the market that OPEC+ is willing to put and defend a price floor.”
Beyond its July cuts, the group also pledged in their Vienna meeting on Sunday to further cut global production by 1.4 million bpd.
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