Will OPEC+ output cut stabilise oil market?

Oil prices surged to their highest levels in nearly a year after OPEC and its allies announced plans to slash output by more than a million barrels per day, aiming to stabilize the oil market. The move has sparked optimism among industry experts and oil producers, including African nations like Nigeria and Angola, which heavily rely on oil revenues for their economies. Wonuola Akanbi, Head of Energy and Infrastructure Sales, Global Markets at Stanbic IBTC, shared insights on the impact of these developments on African crude producers in a recent CNBC Africa interview. The initial market response to the output cut announcement was swift, with oil prices spiking to $85 per barrel. However, a subsequent dip was observed as market attention shifted to US labor market data indicating a decline in job vacancies. Despite this minor setback, Akanbi highlighted the positive effects on West African economies, particularly Sub-Saharan African Euro-bonds that rallied following the news. Angola and Nigeria, both key purchasers of oil, experienced significant gains in their bond markets, reflecting investor optimism. Akanbi expressed confidence in the efficacy of the output cut in stabilizing the market, emphasizing the role of China's economic growth in sustaining oil demand. She projected a gradual increase in oil prices, foreseeing a potential rise towards $90 in the short term and a possible move towards $100 by the end of the year. However, she cautioned that geopolitical factors, such as the Russia-Ukraine conflict, could influence price dynamics. The discussion extended to the implications of high oil prices on inflation and central bank policies. Akanbi noted that elevated energy costs could lead to increased inflation, prompting central banks to consider their rate decisions carefully. While some regions, like Europe and the US, have already implemented rate hikes, there are concerns of a potential recession in the US, potentially resulting in rate cuts by the Federal Reserve. The conversation shifted towards the compliance challenges faced by oil-producing countries like Nigeria and Angola in meeting their output quotas. Despite falling short of their targets, the surge in oil prices is expected to bolster their revenues, providing a buffer against quota discrepancies. Both nations have structured their budgets around a $75 per barrel oil price, indicating a favorable revenue outlook amidst the market fluctuations. A significant development in the oil market landscape is the shift away from US dollar settlements, with major players like Russia and China advocating for alternative currencies. Akanbi highlighted the geopolitical and trade implications of this trend, suggesting a potential reduction in US influence and cost-effectiveness in bilateral trades. While the actual transition from dollar settlements remains gradual, the evolving dynamics signify a noteworthy shift in global trade practices. In conclusion, Akanbi emphasized the growing influence of OPEC in shaping oil market dynamics, citing successive output cuts as evidence of the cartel's impact. With OPEC members demonstrating unity in decision-making, the organization is poised to continue driving price trends and market stability in the foreseeable future.