Opec's surprise output cut decision made with caution, says analyst
The surprise decision by Saudi Arabia and other Opec+ producers to cut crude oil output from May was made with caution, a clear sign that the group won’t be deterred by West interference, an oil markets analyst told Reuters on Monday.
The Opec+ group, which consists of the Organization of the Petroleum Exporting Countries and allies including Russia, said on Sunday they would reduce production by a further 1.16 million barrels per day (bpd) from next month. Saudi Arabia, the world's leading oil exporter, said the additional reduction is precautionary and aimed at achieving stability in the global oil market.
“You can count on Opec to err on the side of caution. If there is a chance that demand won’t hit the projections or that things won’t ease off, they’ll move right ahead and they will not be deterred in the slightest by any protests from the West or (US President) Joe Biden,” said John Driscoll, director of Singapore-based consultancy JTD Energy Services.
“I don’t think the fist bump worked last year, it’s not going to work now, so you know, they’re going to move ahead and achieve what they as a group or a cartel are set up to do, to balance supply and demand, without any interference from the US or Europe,” Driscoll added, referencing Biden’s “fist bump” that he shared with Saudi Crown Prince Mohammad bin Salman during his visit to Jeddah in July 2022.
The Biden administration said it saw the move announced by the producers as unwise.
Driscoll also said that he believed China’s growing demand for oil and its special relationship with Russia definitely played a role in Opec’s decision-making process. Nevertheless, some other energy-dependant economies in Asia, such as Singapore, will be especially vulnerable to the output cuts, he said.
The group known as Opec+ had been expected to maintain its earlier decision to cut output by 2 million bpd until December at its monthly meeting on Monday. The pledges bring the total volume of cuts by Opec+ to 3.66 million bpd according to Reuters calculations, or equal to 3.7% of global demand. As a result, Goldman Sachs lowered its end-2023 production forecast for Opec+ by 1.1 million bpd and raised its Brent price forecasts to $95 and $100 a barrel for 2023 and 2024, respectively, its analysts said in a note.
Reuters
