013.04.2023 – Surprise in the oil market: OPEC wants to cut production. From May onwards, around one million barrels less are to gush out of the ground. We shed light on the background.
The driving force behind the action is Saudi Arabia. The country wants to cap output by 500,000 barrels per day. Other members like Kuwait, the United Arab Emirates and Algeria also want to cut. Russia wants to continue its curbs until the end of 2023. This means that from May onwards, about one million barrels of crude oil per day will be less available on the market than before. In total, nine countries from OPEC+ want to commit to a cut of around 1.7 million barrels by the end of 2023. The reaction in Brent: a nice gap, here the hourly chart.
Source: Bernstein Bank GmbH
OPEC comes in at about 40 per cent of the global market. In February, global production was 102 million barrels a day, according to the cartel. The move caught some analysts on the wrong foot. Goldman Sachs, for example, capped its target price for Brent next year from $100 to $94 less than a fortnight ago – and has now moved it back up to $100. For 2023, the price target has now risen again from 90 to 95 dollars.
Hesitation at the SPR
This puts Washington in an awkward position. For the USA does not want to replenish its Strategic Petroleum Reserve (SPR) until prices fall below 72 dollars. According to the Financial Times, the hesitation in flooding the salt domes in the Gulf of Mexico is also the straw that broke the camel’s back. After Energy Secretary Jennifer Granholm said it could take years to refill the SPR, the Saudis are said to have lost patience.
Signal to the USA
Helima Croft, head of commodity strategy at RBC Capital Markets, said Saudi Arabia was now pursuing an economic strategy independent of the US after relations between Riyadh and Washington deteriorated under the Biden administration. It said: “It’s a Saudi-first policy. They’re making new friends, as we saw with China.” The sheikdom is sending a message to the USA: “it’s no longer a unipolar world”. But there are also economic reasons: Amrita Sen, Director of Research at Energy Aspects judged, “Opec+ have made a pre-emptive cut to get ahead of any possible demand weakness from the banking crisis that has emerged.”
The conclusion from all this is that it is always worthwhile for traders to keep an eye on the real-time news. From a fundamental point of view, the question arises whether the lift-off in prices was not somewhat exaggerated. Especially since the fear of a global recession has by no means been banished. Which could put pressure on oil prices again. We are curious to see what happens next and wish you successful trades and investments!
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