Oil prices soar nearly 6pc after OPEC+ output cut

Oil prices have been on an upward trend over the last 24 hours after Saudi Arabia led a surprise oil production cut across several OPEC+ nations through a press statement on Sunday.

The statement also announced that OPEC would remove more than 1 million barrels of oil a day from May.

In  18 hours of the announcement, the oil prices soared almost six percent, the West Texas Intermediate contract jumped 5.74 percent to $80.01 a barrel, while Brent jumped 5.67 percent to $84.42.

OPEC+ nations have taken up the decision following a Russian decision to extend a cut of 500,000 barrels per day, in spite of US call to increase production.

"The move by Saudi Arabia, Iraq, UAE, Kuwait, Algeria and Oman will be in effect from next month until the end of the year. However, we need to watch the situation.

 Right at the moment it is not a big challenge for us but if the situation continues for long time then we have to suffer," former energy adviser and energy expert Dr M Tamim told the Daily Observer on Monday.

He said the oil market is now in "down mood" as the China has stopped buying oil from here and procures it from Russia and Iran. On the other hand, Russia said it would cut production, but in true sense, are not cutting production at all.

Experts also said that the OPEC's announcement will fan fresh fears about inflation and put more pressure on central banks to hike interest rates further.

Following the Russia-Ukraine war on 18 January,2023 the Energy and Mineral Resources Division hiked the gas price by maximum 179 per cent, citing the energy price volatility in the global market and its impact on Bangladesh as it imports LNG. The retail electricity price has also been hiked by 15 per cent in one month.

"If the downward trend of fuel prices in the international market continues for a few more months, gas and electricity prices will also see the downward in domestic market as it is an imported item; however, we will adjust the price locally if the situation remains the same and stable," Energy Adviser to the Prime minister Dr Tawfiq-E-Elahi Chowdhury said on March 30, 2023.

Bangladesh Independent Power Producers Association (BIPPA) President Faisal Karim Khan stated that private power producers have a capacity to generate 6,000MW of electricity, but they are currently producing only 2,500MW.

He also informed that private power producers will need to import 5 million tonnes of HFO to produce electricity at a cost of $2.2 billion annually, but dollar crisis hampered the oil import issue, during the severe dollar crisis time they received less than $100 million for fuel imports.

Recent past BIPPA President Imran Karim, stated that Bangladesh will require around $12.5 billion to procure fuels for electricity generation. He added that fuel prices have decreased by 30-40 per cent in 2023 compared with the previous year.

However, the main concern is still the opening of LCs and the requirement of six-month outstanding payments totaling Tk 277.50 billion. If the delay of LCs continues, it may intensify load- shedding in March, he said.

Dr Tawfiq-E- Elahi Chowdhury said the government has increased gas supply to the gas-power plants which helped meet electricity demand required for irrigation and summer supply-demand management issue.

Meanwhile, Russia's Deputy Prime Minister, Alexander Novak, said in a statement that his country would extend a March production cut of 500,000 barrels a day through the end of the year as the world oil market is experiencing a period of high volatility and unpredictability due to the ongoing banking crisis in the US and Europe, global economic uncertainty and unpredictable and shortsighted energy policy decisions.

 At the same time, predictability in the global oil market is a key element in ensuring energy security.