Breakingviews – OPEC’s oil cut is less surprising than it looks – Reuters

Breakingviews – OPEC’s oil cut is less surprising than it looks – Reuters

LONDON, April 3 (Reuters Breakingviews) - Saudi Arabia has done it again. The de facto leader of the world’s main oil producer club sent crude prices spiking on Monday after proposing a further cut to crude production. Given the Organization of the Petroleum Exporting Countries’ position of strength, the muscle-flexing is more logical than surprising.

Saudi Crown Prince Mohammed bin Salman’s latest gambit is certainly eye-catching. When OPEC and associated allies like Russia pledged to cut 2 million barrels of daily supply in October, it was an official decision by the so-called “OPEC+” grouping that controls over 40% of global output. Sunday’s equivalent was an off-the-cuff “voluntary” announcement by a select subset.

More broadly, major international forecasters like the International Energy Agency expect the oil market to tighten later in the year as Chinese demand recovers. That could prop up crude prices anyway. Meanwhile, Saudi’s long-term reliance on the United States as a major guarantor of its regional security would normally mean it wouldn’t take a rash step that could send U.S. pump prices higher.