OPEC+ Surprises Markets with Larger-than-Expected Supply Hike
[NEW YORK] For most of this decade, the Organization of the Petroleum Exporting Countries and its allies (Opec+) has been the world’s most stalwart defender of high oil prices. In just a few moments this week, that role reversed dramatically.
In a video conference on Thursday (Apr 3), the coalition of crude producers led by Saudi Arabia and Russia was expected to simply remind errant members to respect their output limits, ahead of rubber stamping its existing plan to gradually raise production.
Instead, they delivered a major shock – increasing supply by three times the planned amount in May in what delegates described as a deliberate effort to drive down prices to punish the group’s cheats.
The Gamble
After many months of excess production from Kazakhstan and Iraq, Saudi Energy Minister Prince Abdulaziz bin Salman reached the limit of his patience, delegates said, asking not to be identified because the talks were private. The larger-than-expected May output hike would just be an “aperitif” if those countries did not improve their performance, the prince said on the call.
The move marks a marked break from years of urging Opec+ to remain cautious in adding supplies, illustrating the toll taken on the alliance as its effort to balance global oil markets drags on far longer than initially envisioned.
The Impact
Crude was already reeling from the onslaught of trade tariffs announced by US President Donald Trump the previous day, and the surprise addition of 411,000 barrels a day by Opec+ in May turbo-charged the rout.
West Texas Intermediate futures are down 6 per cent this week, touching an almost two-year low of US$65.21 a barrel.
External Pressure
Other analysts speculated that the Saudis and Russia are seeking to remain in the good graces of the US president, who has urged the cartel to “cut the price of oil”. Washington and Riyadh held discussions in the days before the Opec+ announcement, according to a source familiar with the matter who asked not to be identified.
Conclusion
The surprise Opec+ hike may have far-reaching consequences for the global energy market, as it could lead to a glut of crude oil and drive prices down further. The move also highlights the increasing pressure on Opec+ to balance its output with global demand, as the cartel struggles to maintain its influence in a rapidly changing energy landscape.
FAQs
Q: What was the surprise move by Opec+?
A: Opec+ announced a larger-than-expected supply hike of 411,000 barrels a day in May, a deliberate effort to drive down prices and punish the group’s cheats.
Q: Why did Opec+ make this move?
A: The cartel was seeking to punish countries like Kazakhstan and Iraq for exceeding their production limits, and to demonstrate its willingness to take aggressive action to balance the market.
Q: What are the implications for the global energy market?
A: The surprise hike could lead to a glut of crude oil and drive prices down further, potentially having far-reaching consequences for the global energy market.
Q: What is the motivation behind the move?
A: Some analysts believe that the Saudis and Russia are seeking to remain in the good graces of the US president, who has urged the cartel to “cut the price of oil”.
