On Sunday, the Organization of the Petroleum Exporting Countries (OPEC) and its partners, collectively known as OPEC+, announced a surprise oil production cut of over 1 million barrels per day. The move comes despite previous assurances that supply would remain steady and could pose a new risk for the global economy.
Russia's deputy prime minister led the announcement by revealing that Russia will be voluntarily cutting 500,000 bpd until the end of 2023. Other countries including United Arab Emirates, Kuwait, Iraq, Oman and Algeria also announced cuts.
The Saudi energy ministry stated that this voluntary cut was a precautionary measure aimed at supporting the stability of the oil market. However, Saudi Arabia led OPEC+ by pledging its own 500,000 barrel-a-day supply reduction.
The initial impact of these cuts is expected to add up to about 1.1 million barrels per day starting next month. This move could raise crude prices worldwide and once again flare tensions between Saudi Arabia and the US.
In October last year, Saudi officials had infuriated President Joe Biden's administration with their production-cut announcement. This time around they have also announced plans to trade in currencies other than US dollars - another huge blow to America's economy.
Golden Sachs has already raised its price forecast for Brent crude futures following this latest announcement from OPEC+. Although oil futures were not trading when this news broke on Sunday evening; analysts predict that an inevitable price reaction could add to inflationary pressures across various industries worldwide.
Taken together with existing reductions agreed upon last October by OPEC+ members such as Russia; these output cuts amount to about 3% of all petroleum production taken off markets within seven months alone.
Despite concerns about how these actions will affect economies globally; industry experts believe it may help stabilize prices in times when demand is lower than usual due to pandemic effects.