Sunday’s surprise OPEC+ production cuts have redefined the outlook for crude prices, bringing US$100 a barrel back into the frame.
Prior to the announcement, the cartel’s own numbers suggested the group would need to pump more oil, not less, in the second half. With the International Energy Agency expecting a demand surge later this year, there’s now renewed risk of a fresh inflationary impetus for the global economy.
It wasn’t just a surprise because the decision to cut had been so tightly guarded. It also also came at a time when the oil price was turning higher after a sluggish first quarter, and OPEC+ ministers were giving public assurances that they would stick to their production targets for the entire year.Still, the Organization of Petroleum Exporting Countries and its allies have caught oil markets unawares before.
The decision to cut production would reduce the potential for a slump if a full-blown recession hits later in the year. Yet it also increases the chances of a short-term crude price spike, which would stoke the inflationary forces that have wreaked such havoc in the global economy. Just two weeks ago, money managers had their largest short position in Brent and West Texas Intermediate crude since November 2020. The last time they made such a big bet against oil prices, Saudi Arabia’s Prince Abdulaziz said he wanted those leave those speculators “ouching like hell.”
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