April 4, 2023/United Capital Research
On Monday, 03-Apr, OPEC and OPEC+ members held their 48th joint technical and ministerial committee (JMMC) meeting. Leading up to the meeting, Brent crude and WTI had sunk as low as $73.0/bbl. and $67.0/bbl. respectively in the week following the failure of Silicon Valley Bank (SVB) in the U.S. However, the meeting announced a voluntary reduction in crude oil production of some member countries, in addition to the production adjustments decided at the 33rd OPEC and non-OPEC Ministerial Meeting. Following the announcement, Brent crude rose 6.2% to as high as $85.34/bbl. yesterday, while WTI rose 7.0% to $80.94/bbl.
The Committee stated that it noted overall conformity by member countries to the Declaration of Cooperation (DoC) this year. Most crucially, the meeting noted the voluntary production adjustment of eight member countries, including Saudi Arabia (-500.0kb/d), Iraq (-211.0kb/d) and the United Arab Emirates (-144.0kb/d), starting May-23 until the end of the year. These are in addition to the announced voluntary adjustment by Russia of 500.0kb/d, bringing total reductions to 1.7mb/d. This decision was made as a precautionary measure to support price stability in the oil market amid concerns of a global economic slowdown.
Despite the surprise, this decision is in line with the new OPEC+ Modus Operandi of acting pre-emptively. The 1.2mn b/d cut will significantly weigh on the global supply-demand balance. This will be an additional consideration for policy makers who are currently under pressure to reduce inflation. This development is beneficial to less prominent members considering the capital flight and increased cost of borrowing these economies contend with. However, this development does not involve Nigeria, whose current production levels (1.3mb/d) are well below her OPEC production quota of 1.74mb/d, and below the budgeted average of 1.69mb/d. We expect crude oil prices to remain elevated, oscillating around $80.0/bbl, above the $75.0/bbl. budget target. If the country can ramp up production this year as expected, it can significantly boost government revenues.
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