What a difference a week makes..Less than 10 days after hitting their lowest levels in 15 months, oil markets were back in panic mode Monday after OPEC lynchpin Saudi Arabia announced a surprise production cut of about 1.6 million barrels per day (bpd). Russia, its unofficial ally, followed suit with another 500,000 bpd. Other OPEC affiliated countries said they would consider their own cuts..This is in addition to the two million bpd cut last October that had US President Joe Biden in Riyadh begging its de facto ruler, Mohammed Bin Salman, for more oil ahead of the US midterm elections. .American officials were predictably upset again, with one unnamed National Security Council representative telling Washington DC-based The Hill that the cuts were ill advised. “We don’t think cuts are advisable at this moment given market uncertainty — and we’ve made that clear.”.The cuts were announced on Sunday, the start of the Saudi trading week, and immediately sent ripples through global markets. European benchmark Brent, which is sourced from the Scottish North Sea, immediately rose about 8%. North American West Texas Intermediate (WTI) topped $80 per barrel in pre-market trading after falling below $65 last week amid the fallout from the collapse of two US banks and the failure of Credit Suisse in Europe.. Oil price Monday April 30 2023Oil prices skyrocketed Monday on word of Saudi production cuts. .Canadian benchmark Western Canadian Select (WCS) — which trades on a seven-hour delay — was last at $54.42. It is priced in US dollars but sells in Canadian currency. In that regard the loonie was down slightly against the Greenback, but only because the oil price turmoil sparked a flight into US dollars. A higher US dollar acts as a hedge against higher oil prices, reducing the amount it pays for imported oil..That’s bad news for motorists, who saw a four-cent increase at the pumps after the carbon tax rose to $65 on Saturday, but good news for the Alberta government which is banking on an oil price of $79 WTI to make its budget numbers go around. After the first day of the fiscal year it’s about $200 million in the black — every dollar up or down adds or subtracts about that much from provincial coffers..But there could be more pain at the gas station coming ahead of the peak summer driving season..A looming trade war with Mexico further threatens to undermine US oil supplies. The USMCA — or NAFTA 2.0 — member is threatening to cut off some 750,000 bpd of exports to the US to ensure adequate refining capacity at home. .Mexico has been promising to liberalize its oil sector — which is 100% state controlled under its constitution — for years and the Biden administration is reportedly frustrated at the slow pace of reform. Despite being a major oil producer in its own right, the country imports about 1.5 million bpd and is looking to secure its own supplies for its state monopoly Pemex which wants to refine 100% of its production within Mexico’s borders..That’s prompted US officials to threaten a formal challenge under the new North American free trade agreement. Canada is threatening to join amid a dispute over natural gas pipelines. .Last week Calgary-based ATCO walked away from an unfinished pipeline in the state of Hildago after it was awarded $100 million in damages and legal fees from the Mexican state power utility Comision Federal de Electricidad (FCE). Reuters reported that the resolution was anchieved after Prime Minister Justin Trudeau met with Mexican President Andres Manuel Lopez Obrador in January..To date Biden’s response to oil supply volatility has been to release about 1 million bpd from the US’ Strategic Petroleum Reserve but congressional Republicans are threatening to cut that off..Despite nixing the Keystone XL pipeline on his first day in office — which would have sent more than 800,000 bpd to the Gulf Coast — Biden last month approved a controversial drilling project on Alaska’s North Slope and last week oversaw the largest auction of offshore drilling leases in the Gulf of Mexico since 2017.
