April 04, 2023

Opec's Surprise Cut: Is the Global Economy Ready

Over the weekend, Saudi Arabia announced a “voluntary” cut of 500,000 barrels per day in oil production. This was followed by similar announcements from several other Opec+ members who also promised to trim production.

The move highlights the considerable concern that producers have about the state of oil fundamentals, their desire to regain market share and to stabilise prices well over $80 a barrel. It also reflects their desire to reverse financial market sentiment and punish speculators. Most of the countries involved in this voluntary cut are credible producers likely to comply with these targets, suggesting the risks may be tilted towards undersupply of oil.

The decision by Opec+ members to cut production could be a prescient adjustment ahead of a global slowdown or a premature move that hinders recovery.

The move went in the face of very recent guidance from producers, that they would stick to recent production until the end of the year. The move partly reflects concern that oil demand and global growth are failing to pick up as strongly and as quickly as Opec anticipated.

Many market actors expected even stronger energy demand from China after it ended zero Covid, while other actors are worried about the risks of continuing stress from global banks that are facing losses from their bond portfolios.

Read the full article from Middle East Eye.

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