MOSCOW: The Kremlin said Monday oil output cuts by Russia, Saudi Arabia and other major producers that have caused prices to soar are “in the interests” of global markets. The surprise move on Sunday came as oil prices have cooled in recent months after soaring last year following the start of the conflict in Ukraine. “It is in the interests of global energy markets for world oil prices to remain at a good level,” Kremlin spokesman Dmitry Peskov told reporters. “Whether other countries are happy with this or not is their business,” he added.
The decision could anger the United States, which had already criticized the OPEC+ oil cartel, led by Saudi Arabia and Russia, over a previous cut in production last year. Cuts by Saudi Arabia, Iraq, the UAE, Kuwait, Algeria and Oman from May to the end of the year will top one million barrels per day—the biggest reduction since the OPEC+ cartel slashed two million barrels per day in October. Russia said it would extend until the end of the year its own voluntary production cut of 500,000 barrels per day, a measure seen by experts as a way of making prices go up and counteracting the effect of international sanctions.
Russia’s deputy prime minister in charge of energy, Alexander Novak, said the measure was justified by the “high volatility” and “uncertainty” on the oil market. “The predictability of the global oil market is a key element to ensure energy security,” he said in a statement. The reductions, on top of a Russian decision to extend a cut of 500,000 barrels per day, and despite US calls to increase production, risk stoking inflation and pressure to raise interest rates. Russia, a leading member of the OPEC+ cartel, said it was also extending an existing cut of 500,000 bpd to the end of this year, describing it as “a responsible and preventive action”.
Oil prices soared almost six percent in Asian trade on Monday morning with West Texas Intermediate jumping by 5.74 percent to $80.01 a barrel and Brent climbing 5.67 percent to $84.42. A Saudi energy ministry official “emphasized that this is a precautionary measure aimed at supporting the stability of the oil market”, the official Saudi Press Agency said. The cuts follow a drop in oil prices triggered by jitters over the banking sector, following the collapse of US lender SVB and UBS’s hurried buy-out of troubled rival Credit Suisse, UAE-based oil expert Ibrahim Al-Ghitani told AFP.
Brent crude oil prices, trading just below $80 a barrel late last week, should bounce to above $80 as a result of the reductions, he said, calling prices below $80 “unacceptable” for OPEC+. “The producing countries adhere to a balancing level that supports their large financial budget this year, and their next economic plans,” Al-Ghitani said. ‘Recessionary pressures’ The reductions follow a controversial decision in October by OPEC and its allies including Russia—collectively known as OPEC+ — to slash production by two million barrels per day. That cut, the biggest since the height of the COVID pandemic in 2020, also came despite concerns it would fuel further inflation and push central banks to hike interest rates.
OPEC raised its 2023 world oil demand forecast in February, saying it expected demand to grow by 2.3 million barrels per day to an average of 101.87 million barrels per day this year. But “initial expectations of higher demand in the second half are now challenged by the prospects of continued high inflation and recessionary pressures”, said Gulf analyst Yesar Al-Maleki. “OPEC is taking a pre-emptive measure in case demand reduction in the second half is possibly higher,” he told AFP.
Saudi Arabia will cut 500,000 barrels per day, Iraq 211,000, the UAE 144,000, Kuwait 128,000, Algeria 48,000 and Oman 40,000, each country announced. The reductions ignore calls from the United States to raise production as consumption rises and as China, the world’s biggest oil consumer, reopens after its COVID shutdown. “As world economies recover, we’ll see more consumption. And therefore we’d like to see supply meet demand,” said Jose Fernandez, the US Undersecretary of State for Economic Affairs, Energy and the Environment, on the sidelines of the CERAWeek energy conference, in Houston, Texas, last month.—AFP