Voluntary production cuts totaling 1.66 million barrels per day since May
The Organization of the Petroleum Exporting Countries (OPEC) said on the 3rd that major oil-producing countries have voluntarily reduced production from May to a total of 1.66 million barrels per day. The unexpected production cut news stimulated a significant rise in international oil prices.
International observers believe that the production cuts by major oil-producing countries are intended to protect their own interests, highlighting the decline in the influence of the United States in the Middle East under the easing of relations between Saudi Arabia and Iran. At the same time, international oil prices are expected to rise, increasing global inflationary pressures and the difficulty of monetary policy regulation by Western central banks.
“OPEC+” wants to strengthen oil pricing power
Saudi Arabia, the world‘s largest oil exporter, announced on the 2nd that from May to the end of this year, it will cut oil production by an average of 500,000 barrels per day. The Saudi Ministry of Energy said the voluntary production cut was in addition to the production cut decision made at the 33rd OPEC and non-OPEC ministerial meeting last year.
Driven by OPEC’s “leader” Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Algeria and other countries have announced production cuts. Analysts pointed out that the move by Saudi Arabia and other countries aims to provide “preventive” measures to stabilize the international oil market, indicating that the “OPEC+” composed of OPEC member countries and non-OPEC oil-producing countries will be more proactive in responding to international oil price fluctuations in the future. At the same time, Saudi Arabia has also released increasingly strong signals that its own interests are prioritized.
The outside world had previously expected that “OPEC+” members would maintain the previously agreed daily production cut of 2 million barrels until the end of this year. At the beginning of October last year, “OPEC+” announced that starting from November of the same year, it would reduce monthly production by an average of 2 million barrels per day based on the production in August of the same year. This time Saudi Arabia and other countries decided to continue voluntarily reducing production, indicating that major oil-producing countries are dissatisfied with the continued decline in international oil prices, and once again introduced “preventive intervention” measures to stabilize the oil market.
The United States expressed dissatisfaction with Saudi Arabia and other countries’ decision to cut production. A spokesman for the U.S. National Security Council said the cuts were “unwise” at a time of uncertainty in the global economy. Christian Ulrichsen, an expert on Gulf affairs at Rice University in the United States, believes that Saudi Arabia’s decision-making based on its own interests will become a “friction point” in the relationship between Saudi Arabia and the United States.
Sun Zhen, a professor at Zhejiang University of Foreign Studies and director of the Energy and Ecological Security Research Center of the Mediterranean Research Institute, believes that the production cut reflects that the “OPEC+” countries headed by Saudi Arabia seek to avoid excessive control of international oil prices by the United States and strive for greater oil pricing power . These countries will frequently use more flexible and pragmatic means to ensure the stability of the global oil market and safeguard their own interests.
Ken Ueno, a researcher at Japan’s Nisei Institute of Basic Research, believes that after Saudi Arabia and Iran agreed to resume diplomatic relations, the influence of the United States in the Middle East has been weakened, and the need for Saudi oil policy to consider American factors has decreased.
Inflation worries add to western monetary policy woes
The joint decision of many countries to cut production has injected upward momentum into the international crude oil market, which has been sluggish due to the recent banking crisis. Analysts believe that for some time to come, oil prices will rise by US$5 to US$10 per barrel. There are also expectations that oil prices are expected to return to the high of $100, which may exacerbate the difficulty of curbing inflation and the monetary policy dilemma of Western central banks.
Affected by factors such as the US banking crisis triggered by the closure of Silicon Valley Bank, international oil prices had previously fallen to a 15-month low. Gary Ross, a hedge fund manager of the US Black Gold Investment Company, said that the “OPEC+” move obviously hopes to push up crude oil prices.
St. Louis Fed President James Bullard said volatility in oil prices could fuel inflation and make the job of monetary authorities more difficult.
In order to curb inflation, since March last year, the Federal Reserve has raised interest rates nine times in a row, and the current interest rate has risen to the highest level since September 2007; European, British and other monetary authorities have also followed the US monetary tightening policy. However, aggressive interest rate hikes are having a negative impact on the economy, and the banking crisis in the US and Europe since March is one of the consequences. In the future, the monetary policy rhythm of the central banks of the United States and Europe will become the focus of market attention.
Karen Wald, chief European economist at JPMorgan Asset Management, warned that relevant monetary authorities should learn from the cost of ignoring inflation and missing the opportunity to raise interest rates in 2021. “The impact of oil prices on inflation is very important. When the labor market is tight , the cost shock would have a larger effect, making inflation more persistent.”
According to Ziad Daoud, chief emerging markets economist at Bloomberg Economics, output cuts could lead to slower global growth, higher inflation and could force central banks to act more forcefully.
(According to Xinhua News Agency, Riyadh, April 4th)