Oil surges as OPEC+ surprise output cuts shake markets
Context:
Oil prices surged on Monday, posting the biggest daily rise in nearly a year, after a surprise announcement by OPEC+ to cut more production jolted markets.
Points to ponder:
- OPEC+ is a group of oil-producing countries that includes the members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members such as Russia.
- OPEC+ countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan.
- The group has been implementing production cuts since 2020 in response to the COVID-19 pandemic, which caused a significant drop in oil demand.
- The production cuts were meant to reduce the global oil supply and support oil prices, which had fallen sharply due to the pandemic.
- The group’s decision to cut production further came as a surprise to the market, which had expected the group to maintain its existing output cuts.
- The announcement of further production cuts caused a surge in oil prices, as it suggested that the group was willing to take further action to support prices.
- The increase in oil prices is likely to have an impact on global energy markets, as higher oil prices can lead to higher prices for other forms of energy such as natural gas and electricity.
- Goldman Sachs is a leading investment bank and its analysis of the impact of the production cuts on oil prices is an important indicator of market sentiment.
- The bank’s forecast of higher oil prices in the future is based on the assumption that the production cuts will reduce the global oil supply, which will in turn support prices
- On Monday, oil prices experienced a significant increase, recording the largest daily gain in almost a year.
- This followed an unexpected announcement by OPEC+ to implement further production cuts, causing a surge in the markets.
- Brent crude rose by $4.33, or 5.4%, to trade at $84.22 per barrel by 0900 GMT, reaching $86.44, which was its highest price in a month.
- The group, comprising the Organization of the Petroleum Exporting Countries and their allies, including Russia, surprised the markets by reducing output by approximately 1.16 million barrels daily.
- Before this announcement, the market had expected the group to uphold its previous decision to cut output by 2 million BPD until December, which was to be made during the group’s monthly meeting on Monday.
- Goldman Sachs lowered its end-2023 production outlook for OPEC+ by 1.1 million BPD while also raising its Brent price estimates to $95 and $100 a barrel for 2023 and 2024, respectively, according to a note it sent to its clients.
