Key highlights
- The price of Brent crude has shown an increase following the surprise voluntary production cuts announced by some OPEC member countries.
- Nine countries have announced voluntary production cuts in a move to stabilize oil markets.
- Analysts at Goldman Sachs have increased Brent crude price forecast since the surprise cut.
Brent crude price increased to $84.10 per barrel on Monday, April 3 (5:25 am GMT+1) after the Organization of Petroleum Exporting Countries (OPEC) and their allies announced a surprise oil production cut on Sunday, April 2.
The announcement has been described as a precautionary measure aimed at market stability. The Iraqi Ministry of Oil stated this:
- “To take precautionary measures to confront the challenges facing global oil markets, and to achieve the balance between demand and supply and market stability, the ministry of oil decided to reduce the voluntary production by 211,000 b/d.”
According to OPEC’s Chief Correspondent, Amena Bakr, Saudi Arabia will implement a voluntary cut of 500 thousand barrels per day from May till the end of 2023 in coordination with some other OPEC and non-OPEC Participating Countries in the Declaration of Cooperation.
More countries will cut production
During the same time frame, the United Arab Emirates (UAE) will implement a voluntary cut of 144,000, Oman will voluntarily cut 40,000 barrels per day of crude oil, and Kazakhstan will implement a voluntary cut of 78,000 barrels per day.
Also, Kuwait will cut 128,000 barrels per day, and Iraq will voluntarily cut 211,000 barrels per day. Russia will cut 500,000 barrels per day, Algeria will cut 48,000 barrels per day, and Gabon will cut 8,000 barrels per day.
As a response to the oil production cuts, a spokesperson for the National Security Council at the White House has said that output cuts are not advisable right now given market uncertainty and the White House will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers.
Expectations from the market
Experts have said that the market will react positively to the surprise oil production cut by OPEC, which came mainly from gulf countries. As expected, oil prices will rise in the coming months because of tighter supply.
Already, analysts at Goldman Sachs have increased the Brent crude price forecast for December 2023 by $5 to $95 a barrel, and the price for December 2024 was raised by $3 to $100 a barrel.
The Nigerian context
Nigeria is already behind on meeting its quota as crude oil production for February 2023 was 1.3 million barrels per day as opposed to the quota of 1.8 million barrels per day.
The country could gain higher revenues from the increase in oil prices if only domestic challenges like crude oil theft are adequately tackled. Meanwhile, there is a possibility of an increase in production costs which could impact Nigeria’s crude oil revenues.
The backstory
In October 2022, the Organization of Petroleum Exporting Countries (OPEC) decided to cut crude oil production by 2 million barrels per day from November 2022 till the end of 2023.
At the time, the group said it decided because of the uncertainties around the global economy and because it needed to keep the oil market stable.
