Tougher Times Ahead for OPEC Basket Consumers as OPEC Announces Production Cuts

Crude Oil prices have been supported by the unexpected OPEC+ production quota reduction, which may fuel inflation as supply becomes even more constrained in the second part of this year. This might make central bankers' judgments more difficult, especially in light of the current banking crisis. More than 1.6 million b/d of voluntary production cutbacks are being made by OPEC and its partners, with the majority of the cuts beginning in May and continuing through the end of the year. With cuts of 500,000 barrels each, Saudi Arabia and Russia will take the lead, followed by Iraq, the United Arab Emirates, and Kuwait.

However, what is more, concerning for Asia as a whole is the anticipated surge in oil prices that could stoke inflation at a time when the region is experiencing a fragile economic recovery. Although major Asian consumers like India and China may experience a relatively smaller supply impact as a result of the constant flows of Russian Crude Oil over the past year. With more than a third of its total imports of refinery feedstock coming from the OPEC countries to South Korea, the fourth-largest Crude Oil importer in the world is becoming more and more dependent on Saudi petroleum. Japan's reliance on Middle Eastern Crude Oil is at an all-time high, accounting for 98.1% of the nation's imports in February 2023. The sheer number of cuts has the potential to alter the supply surface drastically. Supplies will be scarce if OPEC+ actually cuts production rates because of the conclusion of the Asian turnaround season.

According to ChemAnalyst, when the production cuts of OPEC are implemented, the Crude Oil prices in European markets will rise as Europe's dependency on OPEC is high after the total ban on Russian Crude Oil and oil derivatives. The American market will also witness a price hike in order to meet the demand from Europe. The Asian markets, except India and China, are likely to witness the highest price rise of Crude Oil on a global scale.