A Surprise Uppercut

The unexpected cut in oil production prompted by global economic and geopolitical reinforces the 23-member cartel's control over global oil pricing uncertainties

- MANISH PANT

IN A MOVE that surprised many and threatened to prolong inflationary pressures on the global economy, oil prices spiked after 23 OPEC+ producers announced on April 2 that they would cut oil output by 1.66 million barrels per day (bpd). The move pushed oil prices up by 6.3 per cent, the highest rise in more than a year.

The OPEC+ cartel—of 13 member countries and 10 other nations—is looking to further constrict oil supplies from May to support prices that had fallen within days of the Silicon Valley Bank crash in the US on March 10. “OPEC has a granular understanding of the demand-supply factors. They seem to have decided that the world economic situation is not hunky dory and that oil demand may collapse faster than what has been anticipated. To that extent, this is an attempt to bring stability to oil prices,” says Harshavardhan Dole, Energy Analyst at IIFL Securities, adding that the move may be a combination of fundamental demand-supply factors and geopolitics, where OPEC+ wants to assert its control over the global oil market.

“The OPEC+ cut in oil output was no surprise, but the way they negotiated and announced the cut and the timing of it was unexpected; a harbinger of more surprises to come,” says Bhushan Bahree, Executive Director of Oil Markets, Downstream and Chemicals Team at S&P Global Commodity Insights.