As many investors and traders know by now, OPEC+ announced “unexpected” production cuts of more than 1 million barrels per day, abandoning previous verbal promises to keep supplies steady to maintain market stability. We have been arguing for a long time that sub-$100/bbl oil price does not suit Saudi Arabia’s interests, and, therefore, Saudis will do “whatever it takes” to beef it up towards the $100/bbl mark. For some time, OPEC has been maintaining a low-key profile on the recent price capping initiatives, etc., but it was only a matter of time until they decided to act.

What happened on Sunday is a significant oil reduction for a market – despite recent price volatility — so supplies will look very tight for the second half of the year. The inevitable price response could increase inflationary pressures globally, forcing central banks to maintain higher interest rates. As of today, Monday, April 3 afternoon, WTI front month futures are trading 5.2% higher at $79.61/bbl, while ICE Brent futures are advancing 5.1% to $84.03/bbl – still offering plenty of room to grow.

Saudi Arabia was the first to pledge to cut output by 500,000 barrels per day. Kuwait, the United Arab Emirates and Algeria followed, while Russia said output cuts imposed from March to June would last until the end of 2023.

The initial impact of production cuts starting next month will amount to about 1.1 million barrels per day. Some 1.6 million barrels per day (bpd) of crude oil will be on the market from July onwards than previously expected due to the extension of existing supply constraints in Russia.