A group of large oil producers led by Saudi Arabia said Sunday they would cut more than a million barrels of output a day starting next month, a surprise move that upset Washington and led to a jump in crude prices amid concerns about the global economy.
The output cut adds to a reduction of 2 million barrels a day agreed to in October by the Saudi-led Organization of the Petroleum Exporting Countries and a group of other producers led by Russia. Taken together, the output cuts amount to about 3% of the world’s petroleum production taken off the market in seven months.
The decision marks another moment when Saudi Arabia, once a reliable U.S. security partner, is setting energy policy at odds with Washington as the West confronts Russia over its invasion of Ukraine. The U.S. has sought to reduce revenue for Russia—one of the biggest oil and gas producers in the world—through sanctions and a price cap, but OPEC+ moves helped prop up crude prices in much of 2022.
Russia nominally is part of Sunday’s action but its output cut—500,000 barrels a day—was announced weeks ago and was likely involuntary, as the damage to its economy from sanctions and the war deepens. Russian officials said they were extending their production cut for the entire year. Russian government revenue has been squeezed, the country’s biggest exports, gas and oil, have lost major customers, and the ruble is down more than 20% since November against the dollar.
The production cut will hit an oil market that was widely seen as tightly balanced between supply and demand, meaning it could lead to a longer-term rise in prices. If higher prices last, they could stoke inflation and complicate decisions for central bankers, who are caught between trying to tame rising prices and propping up a teetering banking system.
The White House doesn’t view production cuts as a good idea at the moment given the uncertainty in the market, the National Security Council said in a written statement on Sunday.
“We’re focused on prices for American consumers, not barrels, and prices have come down significantly since last year, more than $1.50 per gallon from their peak last summer,” the NSC said. “We will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers.”
Saudi Arabia said it would shoulder most of the output cuts, pledging to cut production by a further 500,000 barrels a day starting in May through the end of the year. The announcement was unusual in that it didn’t involve many members of the OPEC cartel or the larger group with Russia called OPEC+, with just a handful of countries promising lower production levels.
According to people familiar with the decision, it was negotiated primarily between the Saudis and Russian to get ahead of a global slowdown and raise prices to fund Saudi Arabia’s ambitious domestic projects and replenish Russia’s reserves.
The oil producers announced their decision less than a month after a bank run led to the collapse of Silicon Valley Bank, sparking a panic in financial markets and raising recession fears. The Saudis were among the biggest losers in the ensuing crisis, with its recently acquired, nearly 10% stake in
Credit Suisse Group AG
losing almost all its value after a run on the Swiss bank’s shares.
Oil prices had been trending downward since late last year on global recession fears, with Brent crude, the international benchmark, nearing $70 a barrel last month. Prices have come back up to close to $80 a barrel in recent days after supply disruptions in Iraq, but some in OPEC see oil demand taking a hit in a recession. The price moved beyond $85 a barrel after the announcement, before falling slightly.
Saudi Arabia’s state press service called Sunday’s production cut “a precautionary measure aimed at supporting the stability of the oil market.”
The decision surprised analysts who follow OPEC and Saudi moves closely.
“Given the preventive nature of OPEC decisions, there is clearly something OPEC knows about demand trends and inventories that we have yet to discover fully in overall supply and demand balances,” said
Christyan Malek,
global head of energy strategy at
JPMorgan Chase
& Co.
Ole Hansen,
an oil analyst at Denmark’s Saxo Bank, said the decision to cut production again reflected concerns over the U.S. economy, where interest rates are widely expected to increase. The Saudis likely feel more comfortable cutting output to raise prices because U.S. production is no longer as nimble as it once was and undercut any reduction by pumping more, he said.
Saudi Arabia and Russia were joined by OPEC members Iraq, the United Arab Emirates, Kuwait and Algeria. Outside OPEC, Oman and Kazakhstan agreed to reduce output.
Crown Prince
Mohammed bin Salman,
the country’s de facto ruler, is in the midst of a plan to use his country’s gusher of oil revenue to transform its economy, rework its landscape and upend its conservative culture. As prices hit $100 a barrel last year, the kingdom accelerated plans for its so-called gigaprojects, which include a new city in the desert, as well as Red Sea resorts and a built-from-scratch tourism industry.
The kingdom’s energy minister, Prince
Abdulaziz bin Salman
—the crown prince’s half brother—has said the country is more focused on the future now, and on delivering
Prince Mohammed’s
projects, known collectively as Vision 2030. He has been among the top officials implementing what is known as a Saudi First economic policy, consolidating power in OPEC and promising last year to act quickly if he saw the market turning in the wrong direction.
Prince Abdulaziz
has been concerned that traders and hedge funds were shorting oil, meaning they took positions betting that oil prices would fall, and he appeared to have decided to fight back, according to people familiar with the matter.
The production cut could add to Riyadh’s problems with Washington. The cuts announced in October ratcheted up tensions with the Biden administration, coming a few months after the president’s trip to Saudi Arabia to heal relations and just before congressional elections.
At the time, the White House accused OPEC+ of actively supporting Russian President
Vladimir Putin.
President Biden promised unspecified consequences for Saudi Arabia, though relations improved after the president’s Democratic Party did better than expected in the midterm elections.
OPEC+’s decision to unexpectedly curb its output deeper comes as markets have been rattled by the shut down of 470,000 barrels a day of exports from Iraq.
Federal authorities in Iraq said a week ago it had won a long-running arbitration case against Turkey over control of crude exports from Iraqi Kurdistan to Turkey, halting supplies from the semiautonomous region.
A spokesman for Iraq’s Kurdistan Regional Government said it had reached a preliminary agreement to resume exports through Turkey this week but added the deal would have to be approved by the Iraqi parliament. Oil executives from companies operating the region said any restart of shipments may be short-lived.
Write to Benoit Faucon at benoit.faucon@wsj.com and Summer Said at summer.said@wsj.com
Corrections & Amplifications
Saudi Arabia’s Saudi First economic policy was incorrectly referred to as Saudi Firs, and Kazakhstan was misspelled as Kazakstan in an earlier version of this article. (Corrected on April 3 )
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
A group of large oil producers led by Saudi Arabia said Sunday they would cut more than a million barrels of output a day starting next month, a surprise move that upset Washington and led to a jump in crude prices amid concerns about the global economy.
The output cut adds to a reduction of 2 million barrels a day agreed to in October by the Saudi-led Organization of the Petroleum Exporting Countries and a group of other producers led by Russia. Taken together, the output cuts amount to about 3% of the world’s petroleum production taken off the market in seven months.
The decision marks another moment when Saudi Arabia, once a reliable U.S. security partner, is setting energy policy at odds with Washington as the West confronts Russia over its invasion of Ukraine. The U.S. has sought to reduce revenue for Russia—one of the biggest oil and gas producers in the world—through sanctions and a price cap, but OPEC+ moves helped prop up crude prices in much of 2022.
Russia nominally is part of Sunday’s action but its output cut—500,000 barrels a day—was announced weeks ago and was likely involuntary, as the damage to its economy from sanctions and the war deepens. Russian officials said they were extending their production cut for the entire year. Russian government revenue has been squeezed, the country’s biggest exports, gas and oil, have lost major customers, and the ruble is down more than 20% since November against the dollar.
The production cut will hit an oil market that was widely seen as tightly balanced between supply and demand, meaning it could lead to a longer-term rise in prices. If higher prices last, they could stoke inflation and complicate decisions for central bankers, who are caught between trying to tame rising prices and propping up a teetering banking system.
The White House doesn’t view production cuts as a good idea at the moment given the uncertainty in the market, the National Security Council said in a written statement on Sunday.
“We’re focused on prices for American consumers, not barrels, and prices have come down significantly since last year, more than $1.50 per gallon from their peak last summer,” the NSC said. “We will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers.”
Saudi Arabia said it would shoulder most of the output cuts, pledging to cut production by a further 500,000 barrels a day starting in May through the end of the year. The announcement was unusual in that it didn’t involve many members of the OPEC cartel or the larger group with Russia called OPEC+, with just a handful of countries promising lower production levels.
According to people familiar with the decision, it was negotiated primarily between the Saudis and Russian to get ahead of a global slowdown and raise prices to fund Saudi Arabia’s ambitious domestic projects and replenish Russia’s reserves.
The oil producers announced their decision less than a month after a bank run led to the collapse of Silicon Valley Bank, sparking a panic in financial markets and raising recession fears. The Saudis were among the biggest losers in the ensuing crisis, with its recently acquired, nearly 10% stake in
Credit Suisse Group AG
losing almost all its value after a run on the Swiss bank’s shares.
Oil prices had been trending downward since late last year on global recession fears, with Brent crude, the international benchmark, nearing $70 a barrel last month. Prices have come back up to close to $80 a barrel in recent days after supply disruptions in Iraq, but some in OPEC see oil demand taking a hit in a recession. The price moved beyond $85 a barrel after the announcement, before falling slightly.
Saudi Arabia’s state press service called Sunday’s production cut “a precautionary measure aimed at supporting the stability of the oil market.”
The decision surprised analysts who follow OPEC and Saudi moves closely.
“Given the preventive nature of OPEC decisions, there is clearly something OPEC knows about demand trends and inventories that we have yet to discover fully in overall supply and demand balances,” said
Christyan Malek,
global head of energy strategy at
JPMorgan Chase
& Co.
Ole Hansen,
an oil analyst at Denmark’s Saxo Bank, said the decision to cut production again reflected concerns over the U.S. economy, where interest rates are widely expected to increase. The Saudis likely feel more comfortable cutting output to raise prices because U.S. production is no longer as nimble as it once was and undercut any reduction by pumping more, he said.
Saudi Arabia and Russia were joined by OPEC members Iraq, the United Arab Emirates, Kuwait and Algeria. Outside OPEC, Oman and Kazakhstan agreed to reduce output.
Crown Prince
Mohammed bin Salman,
the country’s de facto ruler, is in the midst of a plan to use his country’s gusher of oil revenue to transform its economy, rework its landscape and upend its conservative culture. As prices hit $100 a barrel last year, the kingdom accelerated plans for its so-called gigaprojects, which include a new city in the desert, as well as Red Sea resorts and a built-from-scratch tourism industry.
The kingdom’s energy minister, Prince
Abdulaziz bin Salman
—the crown prince’s half brother—has said the country is more focused on the future now, and on delivering
Prince Mohammed’s
projects, known collectively as Vision 2030. He has been among the top officials implementing what is known as a Saudi First economic policy, consolidating power in OPEC and promising last year to act quickly if he saw the market turning in the wrong direction.
Prince Abdulaziz
has been concerned that traders and hedge funds were shorting oil, meaning they took positions betting that oil prices would fall, and he appeared to have decided to fight back, according to people familiar with the matter.
The production cut could add to Riyadh’s problems with Washington. The cuts announced in October ratcheted up tensions with the Biden administration, coming a few months after the president’s trip to Saudi Arabia to heal relations and just before congressional elections.
At the time, the White House accused OPEC+ of actively supporting Russian President
Vladimir Putin.
President Biden promised unspecified consequences for Saudi Arabia, though relations improved after the president’s Democratic Party did better than expected in the midterm elections.
OPEC+’s decision to unexpectedly curb its output deeper comes as markets have been rattled by the shut down of 470,000 barrels a day of exports from Iraq.
Federal authorities in Iraq said a week ago it had won a long-running arbitration case against Turkey over control of crude exports from Iraqi Kurdistan to Turkey, halting supplies from the semiautonomous region.
A spokesman for Iraq’s Kurdistan Regional Government said it had reached a preliminary agreement to resume exports through Turkey this week but added the deal would have to be approved by the Iraqi parliament. Oil executives from companies operating the region said any restart of shipments may be short-lived.
Write to Benoit Faucon at benoit.faucon@wsj.com and Summer Said at summer.said@wsj.com
Corrections & Amplifications
Saudi Arabia’s Saudi First economic policy was incorrectly referred to as Saudi Firs, and Kazakhstan was misspelled as Kazakstan in an earlier version of this article. (Corrected on April 3 )
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8