In early April, Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman announced combined oil output cuts of more than 1.1 million barrels per day (b/d), surprising the markets. This commitment follows a first production cut announced in October 2022 by OPEC+. It comes in addition of Russia‘s decision to cut output by around 500,000 b/d in reaction to the implementation of a EU ban on seaborne imports of Russian oil and oil products.In total, the cuts represent about 3.7% of global demand. They reinforce Coface’s view that oil market tensions will persist throughout 2023. With the return of actions from producing countries, the long-awaited drop in prices is unlikely to occur despite the uncertainties around global economic growth. Coface thus leaves unchanged its forecast of volatility on the market and a price of $90/barrel in 2023.
An announcement that came as a surprise… but is not without basis
The announcement of the production cut and its magnitude came as a surprise after OPEC+ officials had suggested that no adjustment was necessary. However, there are many reasons for the decision.
The reduction is “a precautionary measure aimed at supporting the stability of the oil market “. OPEC+ believes that the outlook for oil demand is less robust. The recent turmoil in the banking sector has reminded that the economic environment leaves little room for complacency. Coface shares this point of view and forecasts a slowdown in global GDP growth to 2% in 2023, after 3.1% in 2022.
Oil prices had fallen significantly. They reached a low point, nearly 48% off the $139 peak reached after the Russian invasion of Ukraine. This move therefore aims at pushing prices higher, while many oil producers are probably uncomfortable with prices below $80.
This decision is a reminder of the cartel’s ability to exercise a pricing power at a time when…