Brent soars over 7% as major OPEC+ members announce sudden output cuts

Front-month ICE Brent has shot up by $5.90/bbl on the day from Friday, to $84.25/bbl at 09.00 GMT.

PHOTO: View of the headquarters of the Organization of the Petroleum Exporting Countries (OPEC) in downtown Vienna. Getty Images

Upward pressure:

Several major OPEC+ members have pledged oil production cuts totalling 1.16 million b/d through 2023. These cuts are in addition to the 2 million b/d output cuts announced by the group last October. This brings the group’s total reductions to 3.66 million b/d this year, according to Reuters' estimates. The sudden and unexpected cuts have raised concerns about tightening oil supplies amid expectations that China's oil demand will grow this year. OPEC+ produced 38.38 million b/d in February, which was 1.72 million b/d below its target.

Kurdish officials and Iraqi officials have reached an initial agreement about resuming oil supply from Kurdistan-owned oil fields in northern Iraq, but the agreement must be finalised before supply can resume.

Meanwhile, several oil producers, including Norway’s DNO, Gulf Keystone Petroleum and HKN Energy, have already started the process of shutting down wells in the semi-autonomous Raqi Kurdistan region following the impasse between the two regions last week. The companies have not yet confirmed when they will resume production fully.

Downward pressure:

Core inflation in Europe has hit a record high at 5.7%, says Craig Erlam, senior market analyst at OANDA. European Central Bank (ECB) policymakers will be vigilant about this issue, he has said, and they will "ensure the [monetary] tightening cycle will continue in May.”

“Markets are pricing a 25-basis-point [interest rate] hike [from ECB] as a near-certainty and we could see expectations for 50 creep higher between now and then if the data doesn’t improve,” according to Erlam.

OPEC member Nigeria's oil demand has been capped by the strikes at French refineries, limiting Brent's upward movement. Kpler cargo tracking data, cited by Reuters, shows that France has imported 30,000 b/d of crude oil from Nigeria so far this month, which is less than half the 200,000 b/d it imported in January-February.

By Konica Bhatt

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