“Analysis of the Impact of Fresh Oil Production Cuts on Ukraine War and Potential Benefits for Putin’s Russia”

Several members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, known as OPEC+, have announced a voluntary cut in oil production by over a million barrels per day from May, leading to a spike in world oil prices. This move is seen as strengthening the bond between Russia and Saudi Arabia. Eight members of the bloc, led by Saudi Arabia, have decided to cut a further 1.16 million barrels per day of production until the end of the year, independent of the broader OPEC+ output policy. This is in addition to Russia’s decision to extend a cut of 500,000 barrels per day. Unlike two previous cuts, several members preferred to act independently on Sunday without going through the formal framework of the alliance that requires the agreement of the 13 countries of the OPEC cartel and its 11 partners (OPEC+). Established in 1960, Vienna-based OPEC aims to “coordinate and unify petroleum policies” of its members to ensure “fair and stable prices for producers”. To form the OPEC+ alliance, the organization included non-OPEC oil-producing countries led by Russia in 2016. The rise in crude oil prices particularly benefits Russia, which “needs oil-money for its expensive war in Ukraine”. The cuts “will tighten up the oil market and thus help Russia to secure better prices for the crude oil it sells”, says Bjarne Schieldrop, an SEB analyst. The consequences of Sunday’s decision are all the greater because, unlike the cuts previously made by the group at the height of the pandemic or last October, “the momentum for global oil demand is up, not down” with a strong recovery of China expected, says Stephen Innes, an SPI AM analyst. Prices were immediately impacted, with the two global crude references jumping about eight percent in early Monday trading. The White House shrugged off the output cut, saying it will have limited impact on the US economy.