The meaning of additional oil production cuts by OPEC+

Alexey Belogoryev, Research and Development Director at the Institute for Energy and Finance, commented to RIA Novosti and the Prime Economic Information Agency on the reasons of the OPEC+ countries decision to additionally and voluntarily reduce oil production until the end of 2023.

An additional reduction in OPEC+ oil production, announced by a number of alliance countries, is likely to stop the decline in world prices, Alexey Belogoryev told RIA Novosti.

“I believe that the main task of such a decision is to reverse the negative price dynamics in the oil market. Prices have been falling since the summer of 2022. But in winter, the fall stopped and in January-February, the average monthly spot price of Brent was held at $82.5 per barrel. However, in March, prices again went down to $78.4, which is the lowest monthly average since December 2021,” Belogoryev said.

According to the expert, a certain role in the OPEC+ decision was probably played by the upward revaluation of the export of Russian oil products. Contrary to the general belief in the inevitability of its sharp reduction due to the EU embargo, this did not happen in practice. Moreover, in general, the situation with Russian exports and production of liquid hydrocarbons so far looks better than forecasts, he said.

In this regard, the leading world agencies have postponed their assessments of the transition of the world oil market into a state of sustainable deficit from the third to the fourth quarter, Belogoryev adds. This creates room for speculative price cuts over the next six months, the expert concludes.