On April 2nd, OPEC+member states announced that they will reduce oil production by over 1 million barrels per day starting from May, effective from May and continuing until the end of 2023. This voluntary production reduction is a supplement to the production reduction framework of the OPEC and non OPEC ministerial meetings in October 2022. At that time, OPEC+member countries had already announced a production reduction of 2 million barrels per day, and with this reduction, the scale of OPEC+production reduction reached approximately 3.5% of global oil production. After the news of production cuts, oil prices jumped in response, and Asian stock markets opened. WTI crude oil futures rose by 8% at one point, but now they have risen by over 6% to $80.25 per barrel; Brent crude oil futures rose to $84.7 per barrel.

OPEC+production reduction has played a stabilizing role in the international crude oil market. OPEC+countries have taken the lead in reducing production, mainly due to two reasons: firstly, economic reasons. The Russia-Ukraine conflict continues, superimposed on the European and American banking crisis, the global economy is expected to decline in the short term, and oil prices will decline. So we can only rely on reducing production to maintain oil prices and support the economies of Middle Eastern countries themselves. The second reason is political. Middle Eastern countries and Western countries, especially the United States, have formed a competitive relationship. In such a situation, Arab countries are increasing their independence from the United States, and naturally will no longer "pay" for inflation issues in European and American countries. Obviously, the United States does not want to see a reduction in OPEC+oil production. The spokesperson for the White House National Security Council issued a statement stating that reducing oil production in Saudi Arabia and other OPEC+countries is not advisable, and stating that the government will continue to work with producers and consumers to ensure that the energy market supports economic growth and lowers energy consumption prices. Faced with the sudden reduction in production by Middle Eastern countries, the United States and European countries are likely to work together to counter it. The United States may further increase its own oil production capacity and release its national strategic oil reserves, and the oil trade between the United States and Europe will continue to grow. From the perspective of demand countries, of course, it is hoped that the lower the oil price, the better. However, if the oil price is too low, the oil producing country's enterprises will be damaged, and future supply may not be able to meet demand. In the medium to long term, significant fluctuations in oil prices may not be conducive to the stability of the global oil market. Therefore, OPEC+production reduction has played a stabilizing role in the international crude oil market.

The unexpected reduction in OPEC+production is bound to bring a new round of inflation shocks to the European and American economies. Both the United States and Europe are facing serious inflationary pressure and are in a long-term interest rate hike channel, and the rise in oil prices has to some extent offset this effort. From a data perspective, Europe is still in an inflation spiral, and the long-term anti inflation effect of the Federal Reserve seems to have begun to show. And when OPEC+announces a reduction in oil production, the Federal Reserve may once again fall into a "dilemma". The Federal Reserve's monetary policy now faces a dilemma of finding ways to stabilize the domestic financial market. If interest rates continue to rise, the banking sector will be hit hard, the value of banks' assets will decline significantly, and banks' solvency will have more problems; But if interest rate hikes slow down, combined with global oil production cuts, a slight easing of inflationary pressure will soon arrive. The downward trend of deposits in US commercial banks continues. According to the latest report released by the Federal Reserve on March 31, the deposit size of all US commercial banks decreased by $125.7 billion again in the week ending March 22, marking the ninth consecutive week of decline. After OPEC+announced a reduction in oil production, the path of interest rate cuts by European and American central banks has become even more elusive. The current market has started to bet that the United States will start cutting interest rates in 2023, while the eurozone has not yet reached a consensus on the termination path of interest rate hikes. After the Middle East region is unwilling to "pay" for inflation in Europe and America, the Federal Reserve's interest rate hike cycle is expected to further lengthen, achieving a slow pace to balance the financial system and inflation. The fermentation of the Silicon Valley banking crisis has issued a warning to the Federal Reserve and the Biden administration that radical interest rate hikes must be shifted, and improving the stability and liquidity of financial markets should be given higher priority. The practice of continuously raising interest rates to suppress inflation faces enormous resistance.

Another motivation for this production reduction action is to crack down on speculators who are short selling crude oil. According to CFTC data, with the outbreak of the banking crisis in Europe and America in March, oil prices fell, and speculators' bearish bets on American oil reached their highest point in four years, while their bullish positions decreased to their lowest point in more than a decade, which made Saudi Arabia nervous. OPEC+has chosen to announce a production reduction on Sunday, which can maximize the power of the reduction and strengthen the trend of short covering when trading resumes on Monday. Analysts believe that the impact of this move on the international oil market should not be underestimated, as it indicates that oil producing countries no longer tolerate excessive fluctuations in international oil prices and have the responsibility and means to adjust the weakened price discovery function of futures markets. The situation where oil prices have been excessively manipulated by Wall Street for a long time in the past is also being quietly changed by OPEC oil producing countries led by Saudi Arabia through their commitment and means to stabilize the market. As the growth of shale oil production in the United States slows down, OPEC+has a greater market power and higher oil prices. With the recovery of global aviation fuel demand, reducing production will help push oil distribution back to the $100 per barrel level faster. OPEC still has enormous room for further production reduction, with limited downside risks for oil prices as a result.