OPEC+ Unexpectedly Decides to Freeze Oil Production... International Oil Prices Surge 4.2%

Saudi Arabia Cuts Daily Output by 1 Million Barrels "To Continue in April"
Intraday Surge of Up to 5%... Gains Capped Amid US Rate Hike Concerns

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] International oil prices surged following the announcement by OPEC+ (the Organization of the Petroleum Exporting Countries and allied major oil-producing countries) that oil production levels would be frozen. Saudi Arabia announced it would continue its production cuts next month, and most oil-producing countries, except Russia and Kazakhstan, declared they would not increase oil production, significantly raising concerns about supply shortages.

According to foreign media including Bloomberg, on the 4th (local time) at the New York Mercantile Exchange (NYMEX), the price of April West Texas Intermediate (WTI) crude oil closed at $63.83 per barrel, up $2.55 (4.2%) from the previous session. This marked the highest price since April 2019.

The sharp rise began after the OPEC+ meeting results were announced, with major oil-producing countries stating they would freeze production at the same level as this month for the next month. Prior to this, the market had expected OPEC+ to increase daily production by about 500,000 barrels or more. Saudi Arabia had previously stated that its daily production cut of 1 million barrels would only continue until March, and due to seasonal factors, oil demand had risen significantly. Additionally, with vaccine rollouts and a slowdown in COVID-19 spread, demand was expected to increase, leading oil-producing countries to be anticipated to boost production.

However, contrary to market expectations, Saudi Arabia announced it would continue production cuts in April and might extend them into May, increasing market anxiety. Russia and Kazakhstan allowed increases of 130,000 barrels and 20,000 barrels per day respectively, but other major oil producers froze production at this month’s levels, highlighting concerns over supply shortages.

As a result, WTI briefly surged more than 5.1% immediately after the OPEC+ meeting announcement, but gains were capped at 4.2% by the end of the session as financial market anxiety spread due to a sharp rise in U.S. Treasury yields.

According to CNBC, on the same day, Jerome Powell, Chair of the U.S. Federal Reserve (Fed), at the Wall Street Journal-hosted ‘Jobs Summit’ event, said, "Inflationary pressures exist but are temporary. We will be patient," indicating no policy response to counter rising interest rates and signaling acceptance of the situation. The 10-year U.S. Treasury yield surged to 1.54%. Regarding the recent rise in interest rates, Powell did not mention any intervention measures such as Operation Twist that the market had anticipated. The spread of financial market anxiety limited the rise in international oil prices.