Oil Prices Surge After OPEC+ Surprise Output Cuts

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Facts

• Fuel prices rose sharply after Saudi Arabia and other OPEC+ countries announced a surprise round of output cuts on Sunday. The 1.16M barrel-per-day ('bpd') cuts could potentially spell trouble for global inflation, which was slowing down just days after an optimistic report on US price data.¹
• According to an official with the Saudi Ministry of Energy, Saudi Arabia will begin its planned production cuts in May. The cuts will last through the end of the year.²
• Following the announcement, oil prices initially jumped by as much as 8%.³
• In addition, Russia said it will extend its reduction of 500K bpd until the end of the year. Oil prices soared when Russia invaded Ukraine, however, the US has been calling for oil producers to increase output, and prices have stabilized to pre-war levels.⁴
• OPEC+ had been expected to maintain its earlier decision to cut output by 2M bpd until December at its monthly meeting on Monday. The pledges bring the total volume of cuts by OPEC+ to 3.66M bpd, equal to 3.7% of global demand.⁵
• Saudi Arabia reportedly is relying on high oil revenues to support ambitious development plans aimed at diversifying Riyadh's economy away from oil. Oil prices dipping toward $70 per barrel in mid-March may have unsettled the Kingdom, which may have prompted the production cut.⁶

Sources: ¹Al Jazeera, ²CNN, ³CNBC, ⁴BBC News, ⁵Reuters and ⁶New York Times.

Narratives

• Pro-establishment narrative, as provided by Bloomberg. The surprise cuts by OPEC+ are ill-advised, as the decision comes just as markets and inflation are recovering. Tensions between the US and Saudi Arabia have been strained since last year when the kingdom refused to pump more. US-Saudi relations will only deteriorate further so long as OPEC+ continues this trend.
• Establishment-critical narrative, as provided by Forbes. Saudi Arabia was looking to offer the US a 500K barrel-per-day deal, but Washington said no. The problem here is simple, and it all lies at the feet of the US government. If America doesn't want to drill its oil in the name of transitioning to green energy, then it shouldn't be mad when OPEC+ does the same thing.