OPEC+ announces surprise 1.15m bpd cut in crude output from May

Quantum Commodity Intelligence – Several members of the OPEC+ producer group announced production cuts amounting to over 1.15 million bpd from May until the end of 2023, while Russia said it will extend its 500,000 bpd cut until the end of the year.

The flurry of unexpected announcements by individual member states on Sunday comes ahead of Monday's official OPEC+ JMMC meeting, during which the group was expected to stick to its current policy.

The surprise cuts came after Brent crude oil futures tumbled to a 15-month low of under $73/b last month as the banking crisis caused investors to pull out of commodities, but prices have since crept higher to close at just under $80/b on Friday.

Sunday's move was led by Saudi Arabia, which announced a cut of 500,000 bpd, while Iraq said it would cut its output by 211,000 bpd, according to official statements.

The UAE pledged a further cut of 144,000 bpd, while Kuwait said it would reduce output by 128,000 bpd, with Oman set to reduce output by 40,000 bd, Algeria by 48,000 bpd, Kazakhstan by 78,000 bpd and Gabon by 8,000 bpd.

Russia's Deputy Prime Minister Alexander Novak joined on Sunday, saying Moscow will extend its voluntary cut of 500,000 bpd – made in March following Western sanction and price caps – until the end of the year.

All freshly announced cuts, combined with the extension of Russia's cut, mean a total of 1.6 million bpd of supply will be removed from the market.

While Brent and WTI were not trading when the cuts were announced on Sunday, they will likely rally when markets in Asia open later in the day, giving a fresh boost to global inflationary pressures and meaning central banks may opt to keep interest rates higher for longer.

The unexpected production cuts will likely increase tensions between the US and OPEC's de-facto leader Saudi Arabia.

When OPEC+ made a surprise production cut of 2 million bpd in October, US president Joe Biden threatened Saudi Arabia there would be "consequences", although the White House has not followed up since.