Daily Update: April 13, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

OPEC Retakes the Reins with Production Cut

On April 2, OPEC and its allies, known as OPEC+, under the leadership of Saudi Arabia and Russia, announced a voluntary cut in oil production of 1.66 million barrels per day. Many market participants were wrong-footed by the unexpected cuts. Quotas for OPEC members are normally finalized at full ministerial meetings, not dribbled out on an off-news day. OPEC representatives were careful to emphasize that the cuts were a precautionary measure aimed at maintaining market stability amid demand uncertainty. Despite ongoing handwringing about the state of diplomatic ties between Washington and Riyadh, the cuts may only be an attempt by OPEC to reestablish the primacy of supply in the face of continuing demand weakness.

The timing and format of the announcements were unusual. Saudi Arabia and Russia issued separate statements, saying they would both cut 500,000 b/d of output. The United Arab Emirates, Kuwait, Iraq, Algeria, Kazakhstan and Oman also announced cuts, amounting to about 1.149 million b/d. Riyadh's cuts are the most consequential, coming over and above its existing quota pledge and following a previous round of cuts in October 2022. Moscow announced it would extend its current cuts, due to expire at the end of June, through the end of 2023. 

Oil prices dipped in late March in response to fears of weakening economic conditions and lackluster demand. Russia’s announcement of its production cut extension focused on the need for price stability. Following the announcements, Dated Brent, the global crude benchmark, jumped $6/b day over day.

While some news reports seized on the announcement of production cuts as further evidence of misalliance between Saudi Arabia and the U.S., the cuts are more consequential for Asian economies, which tend to depend on oil imports. S&P Global Commodity Insights forecast world oil demand to grow by 2.3 million b/d in 2023, driven by anticipated demand out of China. 

"The surprise OPEC+ production quota cuts have propped up oil prices, which could stoke inflation as supply tightens further in the second half of this year,” said Lim Jit Yang, adviser for Asia-Pacific oil markets at S&P Global Commodity Insights. “This could complicate decisions for central bankers, especially after the recent banking crisis."

India, another major oil importer, is somewhat inured to the cuts, given its pivot from Middle Eastern crude toward discounted Russian supplies. Indian demand for Middle Eastern crude plunged 25% in the first quarter as Russia unseated Iraq to become India’s leading oil supplier.

The announced cuts from OPEC+ may reflect a realization among its member states that existing quotas didn’t accurately reflect demand. Already this year, OPEC+ production has been a combined 1.913 million b/d below previous quotas. Given the math of the cuts versus existing underproduction, the announcement might be intended to serve as a reminder to oil markets that OPEC controls supply, without risking destabilization of a shaky global economy.

Today is Thursday, April 13, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

U.S. Not-For-Profit Senior Living Sector Exhibits Stability Despite Rising Pressures

In the U.S. long-term care sector, ratings are largely stable, although industry and macroeconomic challenges remain key risks. Effective and strong management teams were a significant differentiating factor across rated issuers. Rating pressure, where present, primarily consisted of multiple factors, including inconsistent occupancy levels, operating losses and weakening balance-sheet trends.

—Read the report from S&P Global Ratings

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Capital Markets

Listen: Street Talk | Episode 109: Liquidity Crunch Leaves Some Trophy Franchises On Sale - KBW CEO

The liquidity crunch that emerged at a few institutions in March sent fears through the market and battered bank stocks but the selloff has left some trophy franchises on sale, according to KBW CEO Tom Michaud. In the latest Street Talk podcast, KBW CEO Tom Michaud discussed the liquidity crunch that emerged in March and battered bank stocks and offered his view on current valuations, bank liquidity levels, potential regulatory changes and M&A activity.

—Listen and subscribe to Street Talk, a podcast from S&P Global Market Intelligence

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Global Trade

CFR China Soybean Basis Hits Record Low On Weaker Local Demand, Bumper Brazil Harvest

The CFR China soybean basis hit a historical low after reaching close to the 0 cent/bushel mark on April 10 amid weaker domestic demand and falling negative FOB premiums in Brazil where a bumper soybean crop is expected and selling progression from farmers is seen lagging. Platts, part of S&P Global Commodity Insights, assessed the soybean CFR China M1 basis at 5 cents/bushel over May(K) contract on Chicago Board of Trade on April 10, the lowest for a front-month Brazil shipment.

—Read the article from S&P Global Commodity Insights

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Sustainability

Results From The Recent S&P 500 Net Zero 2050 Paris-Aligned Sustainability Screened Index Rebalance (March 2023)

S&P Dow Jones Indices recently completed the rebalancing of all indices that aim to meet the minimum requirements for EU Climate Transition and EU Paris-Aligned Benchmarks. This includes the rebalancing of the S&P 500 Net Zero 2050 Paris-Aligned Sustainability Screened Index, which is designed to measure the performance of eligible equity securities from the S&P 500, selected and weighted to be collectively compatible with a 1.5ºC global warming climate scenario at the index level, among other climate, environmental and sustainability objectives.

—Read the article from S&P Dow Jones Indices

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Energy & Commodities

Listen: The Future Of Nuclear Energy (Part 2)

In a time of geopolitical strife, economic uncertainty and energy transition, nuclear power is edging more and more into the spotlight. Countries are looking to decarbonize, boost their energy security and adjust to shifting trade flows. In the second episode of this special two-part series, S&P Global nuclear news and analytics experts Bill Freebairn, Morris Greenberg, Dr. Jone-Lin Wang and Mason Lester discuss new developments in infrastructure and markets as fleets age out and more countries expand their use of nuclear power.

—Listen and subscribe to Future Energy, a podcast from S&P Global Commodity Insights

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Technology & Media

March Madness Audience Trajectories Bounce In Different Directions

The championship contests of the 2023 versions of March Madness underlined differing viewership tales for the men's and women's college basketball tournaments. UConn's victory over San Diego State University set a new audience low for the men's title game, while LSU's win over Iowa set the high-water mark for the women's sport and could lead to a transformation in rights fees.

—Read the article from S&P Global Market Intelligence

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